jaydee0117
Apr 27, 2008, 10:44 AM
What is the formula to calculate cost of debt
CliffARobinson
Mar 7, 2012, 06:21 PM
It can be measured in before or after tax.
Before tax:
Cost of Debt = (I + (M-NP)/n) / (M + NP) / 2
I = Dollar Return
M = Maturity Value
NP = Net Proceeds of issue
N = years
After Tax:
Cost of Debt = ( I (1-t) +(RV-SV) /n) / (RV+SV) /2
RV = Realisable value (ie they used $104 as this is the current price, not the maturity value)
SV = same as NP above
Source: AskMeHelpDesk (https://www.askmehelpdesk.com/finance/cost-debt-correct-formula-use-196863.html)