Redeemable debt
In this lesson, you'll learn how to calculate the cost of redeemable debt—a key skill for Financial Reporting, Financial Management, and Strategic Business Reporting papers.
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In this lesson
- 0:00 Redeemable debt and cash flows
- 0:25 Internal rate of return formula recap
- 1:58 Calculating cost of debt step by step
- 3:00 After-tax interest and redemption payments
- 4:03 IRR calculation with two discount rates
About this lesson
Redeemable debt requires you to find the internal rate of return (IRR) by discounting all future cash flows (interest payments and capital redemption) at the debt holder's required return. You'll work through a practical example using the IRR formula with two discount rates, then adjust for the after-tax cost of debt using the corporation tax rate. This technique is essential for valuing debt securities accurately and understanding how market prices reflect the present value of future cash flows.
Duration: 5m
Transcript
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