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Understanding Debt Valuation and Cost

The document discusses the concepts of debt and equity, focusing on the valuation of loans and the cost of capital. It explains how interest rates, tax implications, and market conditions affect the cost of debt and the valuation of loans. Additionally, it highlights the importance of understanding cash flows and discount rates in determining the cost of debt.

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gokev40631
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0% found this document useful (0 votes)
9 views17 pages

Understanding Debt Valuation and Cost

The document discusses the concepts of debt and equity, focusing on the valuation of loans and the cost of capital. It explains how interest rates, tax implications, and market conditions affect the cost of debt and the valuation of loans. Additionally, it highlights the importance of understanding cash flows and discount rates in determining the cost of debt.

Uploaded by

gokev40631
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Owners k ilawa koi b banda aap ko paisy deta hai to wo Debt kehlata hai

depend

main ne ek bank se 100M loan liya huwa hai to is ki value kya hai simple-100M
lakin share main aisa nahi hai wahan ho sakta hai k 10 ka share issue kiya us ki value
1000 ho gyi hai but yahan Bank loan main nahi
Tayyab ko parh gyi hai paisun ki
zarurat to yeh ab yeh receiveable
bechna chahty hain k yeh 1Lac Equity main kaha tha k zaruri nahi k jo Market Price wohi us ki
main le lo is ka sara interest @4% value ho but yahan keh rahy hain---Q--to Social aur Political etc
b le lena aur end pay 100,000 b ka debt pay itna asar nahi hota jaisy yahan Darhna hota hai to
to aap le lo gay kya market main share ki prices foran gir jayein gein but Debt ki prices pay nahi
agar kisi ko do gay loan to wo 10% return asar pary ga q k in pay kam risk hota hai aur in pay return paka
de ga yahan se 4% mily ga to zahir hai is hota hai jo mily ga hi mily ga-Abnormal fluctuation ka impact
100,000 se kam pay lo gay nahi ata debt pay

Security Mortage lien etc same hain


3 Years

risk main similar


kisi co k bohot achy mali halat-Better Credit rating
kisi co k bohot bury halat-Worse credit rating
Debt k rate of return ko aksar Yield b kehty hain

aap 85K do gay yeh loan leny k liye to


yahi to us ki value hai

[Link] ki CFs bana lein


[Link] ki Mkt rate pay PV bana lein to aap is qeemat pay yeh loan buy karo gay
means is loan ki yeh value hai

yeh 15K exactly reflect 6%


k loss ko

Agar wo 10% rate charge karein to PV banti hai 100,000 aur abhi wo jo charge kar rahy hain
us ki base pau 85K banta hai to yeh 15K is rate k difference ki waja se hai
2.
Yeh yeh samajh a gyi
ki Cost of Capital

Aap ne MCB se laon liya huwa hai

Aap ka interest rate 8% hai but aap ki Cost of debt yeh nahi q k aap theak hai interest to 8 hi pay kar rahy ho but yeh interest aap ko tax main admissible
expense hai to is waja se 8*0.3=2.4 ki chut b mily gi to ideally aap ko cost 8-2.4=5.6 hi parh rahi hai aur 5.6/100M=5.6% to aap ki cost of debt 5.6% hai
Interest 10 se barha hai but profit to 7 se kam
huwa hai means aap ko asal main cost 7 ki hi
parhi q k interest ki waja se 3 ki tax saving huwi
so hum I(0.7) ka factor apply q k 30% to tax
ki waja se saving ho gyi

If tax rate increase --- low cost of debt


is calculated at a certain
time-ek kisi waqat pay
nikalata hai jaisy 1Jan
2021 ko nikala

jo is date pay tax rate ho ga jo is date pay


estimation ho gi wo le li jahy gi
to bad main agar change to koi nahi bad main
change kar lein
jo tax receive kar raha hai wo 10% hi receive kar raha hai usy koi tax
main chut nahi mil rahi
Jo Interest pay kar raha hai usy yeh expense allow b ho raha
hai is liye is pay tax saving ho rahi hai

Receiver is 10 pay tax pay kary


ga but simple usy ignore kar
dein gay FM main q k FM is
Complexity main nahi parhta
recepiant 10% receive kar rahi hai

Payer 7% pay kar raha hai tax saving ki waja se

Cost of acquity main jo company pay kar rahi hoti hai us ki cost exactly same hoti hai jo entity wo receive kar rahi hoti hai
q k dividend is not expense so not tax saving so dono ki cost same yahan maybe receipiant ne is pay kuch tax dena ho but
simple ignore kar dety hain
Bond

90 ka interest har saal pay


kiya jahy ga

Agar kuch naa likha ho to redeem at Par value


(Traded)

Listed ki MV humhein har waqat pata hoti hai


ek saal de diya hai ab 4 saal rehty hain
aur yeh 100 nahi 70 hai q k 30 ka tax saving

Dono cases main equation barabar hain


ek taraf rakhein loan ki inflow ko 100 dusri taraf us
ki outflow rakhein to discount rate jis ko rakhny pay
yahan q equal q k return hi dono sides barabar ho jayein wo discount rate asal
itny % de raha hun main us equation ka Kd hota hai

Ek taraf aap inflows rakhein dusri side outflows to outflows ko jis rate pay discount karein k jis se yeh equation barabar ho jahy to us rate
ko Cost of Debt kehty hain
Yahan cost of debt kya ho gi koi aisa rate jis se yeh equation barabar ho jahy
wo hi Kd hai q k ek taraf main ne inflow likh diya dusri side is k sub outflows
SAME REPEATED SLIDE

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