Cost of debt formula

    • [DOC File]BALANCE OF PAYMENTS

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      COST OF DEBT (Kd) We use the after tax cost of debt because interest payments are tax deductible for the firm. Kd after taxes = Kd (1 – tax rate) EXAMPLE. If the cost of debt for Cowboy Energy Services is 10% (effective rate) and its tax rate is 40% then: Kd after taxes = Kd (1 – tax rate) = 10 (1 – 0.4) = 6.0 %

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    • [DOC File]Chapter 13 The Cost of Capital

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      The relevant cost of new debt, taking into account the tax deductibility of interest. In effect, the government pays part of the cost of debt because interest is deductible. Note that the cost of debt is the interest rate on new debt, not the interest rate paid on existing or old debt. A 15-year, 12% semiannual bond sells for $1,153.72. What ...

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    • [DOC File]Expected returns and promised returns on debt in the cost ...

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      The debt return dollars appearing in Column 5 represents the cost to Pipeline U.S.A. to pay the interest on the debt to its bondholders. This debt return, or interest on debt, of $30,723,000 as shown in column (5) is included in the Return component of the cost-of-service.

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    • [DOC File]Revision 5 – Cost of Capital

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      The promised yield on the debt is (given by 100/65) 54%.If you were to use this in the WACC formula you would get a cost of capital of 0.46*36% + 0.54*54% = 45.7%. If you were to use this to value the firm you would get a value that is much less than the current enterprise value of the firm.

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    • [DOC File]Capital components: debt, preferred stock, and common stock

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      Assume the pre-tax cost of debt is 8 percent, the cost of equity is 12 percent, and the marginal tax rate is 30 percent. Using free cash flow computed in Question 1 and the weighted average cost of capital computed in Question 2, estimate BrandCo’s enterprise value using the growing-perpetuity formula.

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    • [DOC File]Chapter 5

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      (viii) Cost of debt and Cost of Pref. share capital, both, require tax adjustment. (ix) Every source of fund has an explicit cost of capital. (x) WACC is the overall cost of capital of the firm. (xi) Cost of debt is the same as the rate of interest. (xii) Cost of Pref. share capital is determined by the rate of fixed dividend.

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    • [DOC File]Cost-of-Service Rates

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      Cost of Debt = { [(SD/TD) x (TN x AF)] + [(LD/TD) x (TB x AF)] } x [1 – TR] Where; SD = Short Term Debt. LD = Long Term Debt. TD = Total Debt. AF = Debt Adjustment Factor. TN = Avg. Rate of Treasury Notes. TB = Treasury Bond Rate. TR = Tax Rate. Example: On 12/3 (shown below) 10 year bonds were yielding 7.0161%, this is the “Pre-tax Cost L.T. Debt”

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    • [DOCX File]Valuation: Measuring and Managing the Value of Companies

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      Plan E and the original plan provide the same earnings per share because the cost of debt at 10 percent is equal to the operating return on assets of 10 percent. With Plan D, the cost of increased debt rises to 12 percent, and the firm incurs negative leverage reducing EPS and also increasing the financial risk to Dickinson. 5-22. (Continued) b.

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    • [DOC File]Part II: The Cost of Capital

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      Formula. Cost of irredeemable debt capital, paying interest i in perpetuity, and having a current ex-interest price P0: 4.2.2 Example 8 ABC Co has issued loan stock of $100 nominal value with annual interest of 9% per year, based on the nominal value. The current market price of the loan stock is $90.

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    • Cost of Debt (Definition, Formula) | Calculate Cost of Debt ...

      3.1 The formulae of the cost of debt for the various types of debt are as follows: Type of debt Cost of debt Irredeemable debt without tax Irredeemable debt with tax Redeemable debt Same as IRR Non-trade debt (bank loan) Interest rate × (1 – T) Preference shares 3.2 Convertible debt – the following terminology should understand:

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