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WACC-MV of debt

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › WACC-MV of debt

  • This topic has 1 reply, 2 voices, and was last updated 4 years ago by John Moffat.
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  • February 10, 2021 at 4:19 am #609875
    Noah098
    Member
    • Topics: 935
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    • ☆☆☆☆☆

    sir in a WACC where we would need the MV of debt. If both coupon% and pre-tax Kd given then we directly discount teh coupons and redemption amount with pre-tax Kd.

    But if coupon% and post-tax Kd given then to find the MV of debt, we would first have to multiply coupon x (1-T), and then discount by post-tax KD, right sir?

    February 10, 2021 at 10:45 am #609906
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54738
    • ☆☆☆☆☆

    It is investors who determine the market value and they are not affected by company tax.
    Therefore if calculating the market value we discount the pre-tax flows to the investor at the pre-tax cost of debt.

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