How to compute the cost of debt for the company from the financial statement and if there
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How to compute the cost of debt for the company from the financial statement and if there is no debt on its books then use the rating for the company and the spread over gsec for such companies and adjust the same suitably to estimate the cost of debt. For this purpose how to use the Cricil risk matrix provided below:
Average | 0-0.5 | 0.5-1 | 1.0-2.0 | 2.0-3.0 | 3.0-4.0 | 4.0-5.0 | 5.0-6.0 | 6.0-8.0 | 8.0-10.0 | >10.0 | |
Gilt | 7.07% | 5.36% | 5.91% | 6.65% | 7.13% | 7.41% | 7.48% | 7.50% | 7.58% | 7.81% | 7.88% |
AAA | 7.35% | 0.69% | 0.64% | 0.10% | 0.23% | 0.18% | 0.24% | 0.24% | 0.24% | 0.07% | 0.15% |
AA+ | 7.61% | 0.86% | 0.68% | 0.29% | 0.42% | 0.45% | 0.55% | 0.55% | 0.60% | 0.43% | 0.51% |
AA | 7.95% | 1.11% | 0.97% | 0.60% | 0.78% | 0.81% | 0.89% | 0.92% | 0.99% | 0.82% | 0.92% |
AA- | 8.29% | 1.25% | 1.27% | 0.77% | 1.06% | 1.10% | 1.25% | 1.38% | 1.45% | 1.28% | 1.37% |
A+ | 8.60% | 1.51% | 1.51% | 0.98% | 1.35% | 1.49% | 1.59% | 1.71% | 1.79% | 1.62% | 1.78% |
A | 8.87% | 1.68% | 1.68% | 1.30% | 1.67% | 1.83% | 1.93% | 1.97% | 2.04% | 1.87% | 2.04% |
A- | 9.42% | 2.00% | 2.00% | 1.69% | 2.34% | 2.38% | 2.51% | 2.63% | 2.69% | 2.53% | 2.72% |
BBB+ | 9.73% | 2.16% | 2.16% | 1.93% | 2.61% | 2.74% | 2.85% | 2.99% | 3.07% | 2.95% | 3.14% |
BBB | 10.31% | 2.83% | 2.83% | 2.52% | 3.17% | 3.29% | 3.40% | 3.51% | 3.59% | 3.51% | 3.70% |
BBB- | 11.14% | 3.75% | 3.75% | 3.38% | 3.91% | 3.94% | 4.25% | 4.39% | 4.47% | 4.31% | 4.50% |
BB+ | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
BB | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
BB- | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
B+ | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
B | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
B- | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
C | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
D | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
Related Book For
Cornerstones of Financial and Managerial Accounting
ISBN: 978-1111879044
2nd edition
Authors: Rich, Jeff Jones, Dan Heitger, Maryanne Mowen, Don Hansen
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