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Cost of Debt - Coggle Diagram
Cost of Debt
Redeemable debt
Redeemable debt is usually repaid at its nominal value but may be issued as repayable at a premium on nominal value
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The internal rate of reutnr is a method used for investment appraisal that calculates the rate of return at which the net present value of all the cash flows from a project or investment is equal to 0
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Irredeemable debt
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The higher the rate of corporation tax payable by the company, the lower the after tax cost of debt capital
The cost of preference shares will be higher than the cost of debt capital as there is no tax relief on a preference share dividend
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The cost of debt is usually expressed as an after tax rate because interest is a tax deductible expense