Cost of debt means YTM. YTM is the Rate at which PV of Cash inflows are equal to PV of Cash outflows.
Period | CF | [email protected]% | Disc CF | PVF @5% | Disc CF |
0 | $ -1,125.00 | 1 | $ -1,125.00 | 1 | $ -1,125.00 |
1 | $ 56.00 | 0.956938 | $ 53.59 | 0.952381 | $ 53.33 |
2 | $ 56.00 | 0.91573 | $ 51.28 | 0.907029 | $ 50.79 |
3 | $ 56.00 | 0.876297 | $ 49.07 | 0.863838 | $ 48.37 |
4 | $ 56.00 | 0.838561 | $ 46.96 | 0.822702 | $ 46.07 |
5 | $ 56.00 | 0.802451 | $ 44.94 | 0.783526 | $ 43.88 |
6 | $ 56.00 | 0.767896 | $ 43.00 | 0.746215 | $ 41.79 |
7 | $ 56.00 | 0.734828 | $ 41.15 | 0.710681 | $ 39.80 |
8 | $ 56.00 | 0.703185 | $ 39.38 | 0.676839 | $ 37.90 |
9 | $ 56.00 | 0.672904 | $ 37.68 | 0.644609 | $ 36.10 |
10 | $ 56.00 | 0.643928 | $ 36.06 | 0.613913 | $ 34.38 |
11 | $ 56.00 | 0.616199 | $ 34.51 | 0.584679 | $ 32.74 |
12 | $ 56.00 | 0.589664 | $ 33.02 | 0.556837 | $ 31.18 |
13 | $ 56.00 | 0.564272 | $ 31.60 | 0.530321 | $ 29.70 |
14 | $ 56.00 | 0.539973 | $ 30.24 | 0.505068 | $ 28.28 |
15 | $ 56.00 | 0.51672 | $ 28.94 | 0.481017 | $ 26.94 |
16 | $ 56.00 | 0.494469 | $ 27.69 | 0.458112 | $ 25.65 |
17 | $ 56.00 | 0.473176 | $ 26.50 | 0.436297 | $ 24.43 |
18 | $ 56.00 | 0.4528 | $ 25.36 | 0.415521 | $ 23.27 |
19 | $ 56.00 | 0.433302 | $ 24.26 | 0.395734 | $ 22.16 |
20 | $ 56.00 | 0.414643 | $ 23.22 | 0.376889 | $ 21.11 |
20 | $ 1,000.00 | 0.414643 | $ 414.64 | 0.376889 | $ 376.89 |
NPV | $ 18.09 | $ -50.23 |
YTM per 6 Months = Rate at which least +ve NPV + [ NPV at that rate / Change in NPV due to 0.5% inc in Disc Rate ] * 0.5%
= 4.5% + [ 18.09 / 68.31 } * 0.5%
= 4.5% + [ 0.26 * 0.5% ]
= 4.5% + 0.13%
= 4.63%
YTM per anum = YTM per 6 Months * 12 / 6
= 4.63% * 12/6
= 9.26%
After Tax cost of Debt = YTM (1- Tax Rate )
= 9.26% ( 1 - 0.34 )
= 9.26% * 0.66
= 6.11%
AFter Tax cost of Debt is 6.11%
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