SOMAX 6/96

This topic has 1 reply, 2 voices, and was last updated 11 years ago by John Moffat.

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May 21, 2015 at 8:53 pm #247781
BrianH
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Sir

In bpp solution for the above question, when calculating the cost of the fixed bonds, they didn’t multiply the interest by (1-t) in the IRR calculation, eg they used the full $14.

Isn’t it correct to factor in the tax saving on the interest when calculating cost of debt??

Many thanks
May 22, 2015 at 6:59 am #247836
John Moffat
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True. Although because they are not calculating the cost for the purposes of discounting a project, but in order to compare swapping with not swapping, I think it is fair enough for them to ignore tax here.
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