COST ACCOUNT (COST OF CAPITAL)
This query is : Resolved
22 October 2009
Cost of Debt Capital
Guide me which is correct formula of COST OF DEBT CAPITAL
1. (Int. X (1-Tax)+(RV-NP/2)) / (RV+NP/2)
OR
2. Step 1 = (Int. + (RV-NP/2)) / (RV+NP/2)
Step 2 = Step 1 ANS x (1-Tax)
Guide me which is correct formula of COST OF DEBT CAPITAL
1. (Int. X (1-Tax)+(RV-NP/2)) / (RV+NP/2)
OR
2. Step 1 = (Int. + (RV-NP/2)) / (RV+NP/2)
Step 2 = Step 1 ANS x (1-Tax)
22 October 2009
Correct formulae is (Int. X (1-Tax)+(RV-NP/2)) / (RV+NP/2) coz company gets deduction of interest payment and hence that is savings in the hands of the company.Thats why interest shall be taken after tax.
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