The first midterm of the season is on Thursday.
Does anyone know whether I should use the after-tax interest expense or the net borrowing cost when calculating the spread? And which of those is also known as the return on debt? Or are all three the same thing?
Despite appearances, the above are real sentences - the meaning of which I should learn before Thursday.
1 comment:
*cleans off rust on brain*
If you mean cost of debt when you say return on debt, I think it's generally the entire rate, so benchmark rate (ie LIBOR) plus the spread. The spread is the difference between a benchmark rate and the rate the issuer pays on the debt. If you are computing WACC, you take the cost of debt and multiply by 1-tax rate.
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