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Hello sir,
There are a few questions which i would like you to explain me as these are creating doubts ï.
Q1.What is the exact difference between a BOND and DEBENTURE?
Q2. Is the calculation for Cost of debt of bonds and debentures the same ?
Q3. In the exam how am i supposed to know which way to calculate the cost of debt as sir to find out cost of debt of redeemable debentures we have to calculate IRR, but while going through chapter 8 of opentuition notes about the valuation of debt finance the valuation of redeemable debt ( bonds) is done in a different way using present values and then IRR method. Which confuses me.I would appreciate if you could clear these doubts sir 🙂
Regards.1. No difference – they are different names for the same thing.
2. Yes – the same 🙂
3. The cost of redeemable debt is always calculated as the IRR. In order to calculate the IRR you have to calculate the NPV at two different interest rates and then interpolate between them. There is no other way than the way that is done in the lecture.
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