12-19-2021, 02:44 PM
Investopedia's Cost of Debt formula is wrong
<!-- SC_OFF --><div class="md"><p>I think it's wrong ever since lease expenses were capitalised thus dilluting the cost of debt.</p> <p>Also, from <a href="https://www.investopedia.com/terms/w/wacc.asp">Investopedia's page on WACC</a>, </p> <p><strong>Determining the cost of debt (Rd), on the other hand, is a more straightforward process. This is often done by averaging the yield to maturity for a company’s outstanding debt. This method is easier if you’re looking at a publicly traded company that has to report its debt obligations.</strong></p> <p>Couldn't the cost of debt be calculated using the interest expenses for the latest period divided with the total (interest bearing debt + leases) extracted from the Statement of Cash Flows?</p> <p>Since leases hold no interest but are an essential part of capital shouldn't they lower the cost of debt and increase the market value of the firm's debt?</p> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/OppositeFingat"> /u/OppositeFingat </a> <br/> <span><a href="https://www.reddit.com/r/investing/comments/rji2tf/investopedias_cost_of_debt_formula_is_wrong/">[link]</a></span> <span><a href="https://www.reddit.com/r/investing/comments/rji2tf/investopedias_cost_of_debt_formula_is_wrong/">[comments]</a></span>Kind Regards R
<!-- SC_OFF --><div class="md"><p>I think it's wrong ever since lease expenses were capitalised thus dilluting the cost of debt.</p> <p>Also, from <a href="https://www.investopedia.com/terms/w/wacc.asp">Investopedia's page on WACC</a>, </p> <p><strong>Determining the cost of debt (Rd), on the other hand, is a more straightforward process. This is often done by averaging the yield to maturity for a company’s outstanding debt. This method is easier if you’re looking at a publicly traded company that has to report its debt obligations.</strong></p> <p>Couldn't the cost of debt be calculated using the interest expenses for the latest period divided with the total (interest bearing debt + leases) extracted from the Statement of Cash Flows?</p> <p>Since leases hold no interest but are an essential part of capital shouldn't they lower the cost of debt and increase the market value of the firm's debt?</p> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/OppositeFingat"> /u/OppositeFingat </a> <br/> <span><a href="https://www.reddit.com/r/investing/comments/rji2tf/investopedias_cost_of_debt_formula_is_wrong/">[link]</a></span> <span><a href="https://www.reddit.com/r/investing/comments/rji2tf/investopedias_cost_of_debt_formula_is_wrong/">[comments]</a></span>Kind Regards R