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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
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 |
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