Ques 5a mai of bonds refunding decision discount rate kya lenge and kyu? Bcoz discount rate diya hi nhi hua hai..it can either be 7 or 4.90 which one to take?
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Attach the solution also, so that I can check both the solution as well as the question.
Rate for Discount will be always After tax cost of debt. If the same is not given in Question then use After tax interest rate of New Bond for Discounting.
Accordingly in the Given case After tax interest rate of Newbond is used. ie.7(1-0.3)=4.90%