Page 26 - PowerPoint Presentation

COST OF CAPITAL

Debt (kd)

Example 1:

Company B has 10 000 R100 debentures in issue. Interest at 12% is paid

annually. The debentures are non redeemable and are currently trading at

R96 each. The current tax rate is 28%. Calculate the cost of debt.

kd (after tax) = 100 x 12% x 72%

96

= 9%

26