While computing the cost of equity using the formula , D1 + g, we do not make any adjustment to Po express the cost of equity on an after-tax basis whereas while computing the cost of debt, a tax adjustment is required to arrive at after-tax cost of debt. Why is this so? Explain briefly. (75-150 words)
While computing the cost of equity using the formula , D1 + g, we do not make any adjustment to Po express the cost of equity on an after-tax basis whereas while computing the cost of debt, a tax adjustment is required to arrive at after-tax cost of debt. Why is this so? Explain briefly. (75-150 words)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Question 2
While computing the cost of equity using the formula ,
D1
+ g, we do not make any adjustment to
Po
I's
express the cost of equity on an after-tax basis whereas
while computing the cost of debt, a tax adjustment is
required to arrive at after-tax cost of debt. Why is this
so? Explain briefly. (75-150 words)
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