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this is in reference to Q19 of the Specimen Paper Section A. Thank you for your help
This is explained in full in our free lectures.
When calculating the market value of debt we use the pre-tax cost of debt (because it is investors who determine the market value and they are not affected by company tax).
When calculating a WACC we use the post-tax cost of debt (because we are looking at the cost to the company and the company does get the benefit of tax relief on the interest payments).
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