AuthorTopic: After-tax cost of debt
@2010-06-22 23:39:35
I understand how the book comes up with the answers to these problems but when I input the numbers into the calculator it seems like the book has the PV and FV numbers backwards.
Ex. Level I, Volume 4, page 87, example 48-4. The book has:
FV= 1000
N= 20
I= 25

...But shouldn't the PV=1025 and the FV= -1000?

As an investor having PV as a negative is correct because I am "giving" my money to the company and therefore the FV will be positive since it will eventually be returned to me. In this example, though, it is the company that is receiving payment and therefore should have a positive PV and then have a negative FV since it will be giving capital back to the investor
@2010-06-30 06:30:32

if I am not wrong, most of the time you have to put yourself from an investor point of view... except if you are doing capital budgeting.

So, even if it is the company that is issuing the bond, the bond pricing is made from the investor (bondholder) point of view.

CFA Discussion Topic: After-tax cost of debt

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Craig Baugh

Craig Baugh