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Chapter 2
Cost of debt
3.1 Summary of cost of debt
If an entity takes out debt finance, they will need to pay interest associated with the
debt. This is the main cost of the loan.
The interest incurred is deductible for tax purposes (the company can claim
reductions in their tax bill).
Cost of debt calculations will always use the POST tax costs of the borrowings.
Cost of debt
Bank borrowings Redeemable
Irredeemable
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