Respected Sir,
Im having a little query on Kd. sometimes the Kd takes tax into account while calculating MV and sometimes the Kd does not take it into account. Can you please ellaborate on when to use and on when not to use tax in Kd?
Kind regards,
Rojid Nayaz.
Ask the Tutor ACCA FM
Tax in cost of debt
8y ago#1Kd is the return to the investor, and tax is irrelevant to the investor.
The cost of debt to the company is, however, after tax relief on the interest and therefore always takes the tax into account (unless, obviously, you are told to ignore tax in the question).
How we calculate the cost of debt depends on whether it is redeemable or irredeemable. Usually in the exam it is redeemable in which case we need to calculate the IRR of the after tax flows.
All of this is explained in detail in my free lectures. The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.
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