Cost of debt = Interest Payments. Debts are the borrowing which company takes to finance the company therefore they have to pay interest on those borrowing.

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Presentation transcript:

Cost of debt = Interest Payments

Debts are the borrowing which company takes to finance the company therefore they have to pay interest on those borrowing. So the cost of debt is that interest which company has to pay on the borrowings and normally it is taken after tax as it is the tax deductible expense.

Cost of Debt PVIF6 Interest ratex in PVIF formula 1-1/1+x^10)/x The x in PVIF formula is %

Cost of equity = (Rm-Rf)*Beta

Cost of Equity = Dividend per share/Current Market value of stock + Growth rate of dividends.

Cost of equity is defined as the return which stockholders require on their investments. It is the required rate of return for the stockholder but it is cost for the company. Cost of equity can be calculated in two ways. Dividend valuation model and Capital Asset Pricing models are the ways through which cost of equity is calculated.

Cost of Equity (12-3)15.5%

WACC = k.e*equity/Equity + Debt + k.d (1-t)*Debt/ Equity + Debt

WACC stands for weighted average cost of capital and it is the combination of equity and debts structure of the company. It is the required rate of return of the investor and by the help of this we discounts the future cash flows and take out NPV of the projects

Debt % Equity % %