Tax deduction from Bond

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November 9, 2020 at 9:21 am #594502
Syed Ahsan Ali
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There is a question AMH Co where I see that tax is not deducted from the calculation of the cost of debt for Bond.

The interest payment is 4.9 whereas if tax is deducted then it would be (4.9 x 0.7) =3.43; but interest wasn’t taken into account and this is the problem.

Why tax isn’t deducted from interest payment?
November 9, 2020 at 2:33 pm #594524
John Moffat
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The interest payment is not $4.90 in the answer. It is $7 per annum (the coupon rate).

The IRR calculation takes (as usual) the after-tax interest payment which is 7 x 0.7 = $4.90.
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