Calculation of Rd

Identify all long$-$term borrowings used for CAPEX purposes. These are usually loans, bonds, notes or leases.

You will need to use the publicly available information as an estimation for the rate and add appropriate margin. This added margin is to account for the terms or risks included in the loan contract.

To decide on the suitable margin, you need to identify investigate the maturity, security and variability of the loan instrument.

Maturity $$ only investigate long$-$term debts $($longer than $1$ year$).$ The information would be found in the borrowings section of the notes. Longer term loans would attract a lower margin.

Security $$ investigate if the borrowings are secured or not. The stronger the security, the lower the margin.

Variability $$ identify if the various instruments are fixed or variable loans. Variable loans are riskier and therefore would attract a higher margin.

Rate $-$ you cannot use the interest repayments to $$reverse$$ engineer the rate. You are to follow the steps below to calculate your weighted average cost of debt:

Establish your base rate $-$ Investigate the current bank bill swap rate $($BBSW$)+$ credit rating $($follow lecture $4$ recording$)$

Apply a suitable margin to each loan instrument:

Rank all your loan instruments in order of risk

Apply a margin for each loan instrument

Research publicly available loan rates to ensure that your margins are reasonable.

Review the annual report to verify if there are any mandates or restrictions to the amount to debt. A significantly high level of company debt would attract a higher margin.

You still have to go through the above steps and include a margin on each loan instrument even if a rate is provided in the annual report. However, you can use that rate to justify your margin applied.