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WACC after tax cost of debit.

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WACC after tax cost of debit.

I am struggling to find which two discount rates to use to find WACC cost of debt. Does anyone have any tips for which discount rates to use

August 30th 2014 AN ACCA USER 1,060 Points

5 Replies

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Redeemable debt -

For most of the time when I use discounting factor for calculating cost of debt to the company (to issuer - interest adjusted to tax rate) or return of investment (to investor - full interest) basically I like to add up 5% and subtract 5% from rate given in the question.

As an example where question says company has in issue 12% redeemable debt with 5 years.......... The discount factor I use for calculation is (12%+5%) = 17% and (12%-5%) = 7%.

Then use interpolation method to find required rate of return. This easily works for manual calculation.

Add remark if this is helpful to you.

September 12th 2014 AN ACCA USER 8,730 Points 1 Flag
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Many thanks for that, It will be a good guide to use in my next exam.
September 15th 2014 AN ACCA USER 1,060 Points
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For using interpolation/extrapolation method you can check on this link as well:

http://saka-accounting.blogspot.com/2014/09/interpolation-and-extrapolation.html
September 18th 2014 AN ACCA USER 8,730 Points
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does this work with the IRR formula?
November 17th 2014 AN ACCA USER 140 Points
Reshown February 12th 2015 AN ACCA USER
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It should do. The reason for the original question was because my first attempt at F9 I got two positive rates and I wanted a guide as to what discount rates to use.

November 17th 2014 AN ACCA USER 1,060 Points
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