What is the difference between the cost of debt capital & the True cost of debt capital?
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The answer in my opinion-
Theoretically it is correct that residual Income model reflects Cost of debt via Interest expense incorporated in the Net income.
however, one of the shortcomings of the model is that it strictly relies upon the accounting data provided in the financial statements which may be managed or manipulated.
for eg– management of the company might have used a non GAAP measure where they capitalized a good chunk of interest expense.
Income statement will still hold an amount of interest expense but that would be manipulated i.e. not reflecting its true nature.