Cost of Perpetual Debt

The measurement of the cost of perpetual debt is conceptually relative easy. It is the rate of return which the lenders expect. The debt carries a certain rate of inter The coupon interest rate or the market yield on debt can be said to represent an approximation the cost of debt. The nominal/coupon rate of interest on debt is the before tax cost of debt. Since the effective cost of debt is the tax adjusted rate of interest, the before tax cost of debt should be adjusted for the tax effect. Finally, the bonds and debentures (debt) an be issued at (i) par, (ii) discount, and (iii) premium. The coupon rare of interest will require adjustment to find out the true cost of debt. Symbolically,


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