Client and Cost of debt: Difference between pages

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1.
(Kd(1-t)).


A client is any customer of a professional services provider.


== Definition of Cost of debt ==
The component of a firm's Weighted average cost of capital which relates to the servicing of the firm's providers of debt capital. 


2. ''Coaching.''
The calculation of the current market cost of debt is based on the Market <u>Yield to maturity</u> of any debt currently in issue.


In coaching, a client is any individual, or organisation, that engages a coach, or agrees to work with a coach.
This will normally be different from the <u>interest rate</u> on the debt, which is <u>not</u> the relevant measure for investment decision making purposes.


In personal coaching, the client is almost always the coachee.


== Simple calculation of corporate tax relief ==
The calculation should also take account of related corporate tax relief on the debt servicing costs. 


3. ''Executive coaching and organisational coaching.''
Hence the '(1 - t)' term in Kd(1 - t).


In executive and organisational coaching, there are generally at least two clients.
Cost of debt is often denoted more simply as 'Kd'.  However this is not best practice, because it may be ambiguous whether the 'Kd' figure is stated before or after the related tax relief.


*The coachee
*The organisation engaging the coach.


<span style="color:#4B0082">'''Example'''</span>


Within the client organisation, the sponsor of the coaching and the coachee's line manager may have different perspectives and interests.
Say the relevant cost of debt is 5% per annum before tax relief, all debt servicing costs are fully tax relieved at 28%, and there are no timing differences between paying the debt servicing costs and enjoying the related tax relief,


For this reason it may be helpful in contracting the coaching agreement to recognise the sponsor and the line manager separately.
Kd(1 - t):


==See also==
= 5 x (1 - 0.28)
*[[Client Assets Sourcebook]]
*[[Coach]]
*[[Coachee]]
*[[Coaching]]
*[[Contracting]]
*[[Executive coaching]]
*[[Line manager]]
*[[Mentor]]
*[[Organizational coaching]]
*[[Private client broker]]
*[[Sponsor]]
*[[Stakeholder]]
*[[Working effectively with others]]


[[Category:Commercial_drive_and_organisation]]
= 3.6%.
[[Category:Influencing]]
 
[[Category:Self_management_and_accountability]]
 
[[Category:Working_effectively_with_others]]
== Stricter treatment of related tax relief ==
[[Category:The_business_context]]
More strictly, the related tax relief should be factored into the net cost of debt calculation by taking account of any timing differences between the debt servicing cash outflows and the related tax savings.
 
 
== See also ==
* [[Cost of equity]]
* [[Timing differences]]
* [[Weighted average cost of capital]]
* [[Yield to maturity]]
 
[[Category:Accounting,_tax_and_regulation]]

Latest revision as of 12:34, 29 January 2020

(Kd(1-t)).


Definition of Cost of debt

The component of a firm's Weighted average cost of capital which relates to the servicing of the firm's providers of debt capital.

The calculation of the current market cost of debt is based on the Market Yield to maturity of any debt currently in issue.

This will normally be different from the interest rate on the debt, which is not the relevant measure for investment decision making purposes.


Simple calculation of corporate tax relief

The calculation should also take account of related corporate tax relief on the debt servicing costs.

Hence the '(1 - t)' term in Kd(1 - t).

Cost of debt is often denoted more simply as 'Kd'. However this is not best practice, because it may be ambiguous whether the 'Kd' figure is stated before or after the related tax relief.


Example

Say the relevant cost of debt is 5% per annum before tax relief, all debt servicing costs are fully tax relieved at 28%, and there are no timing differences between paying the debt servicing costs and enjoying the related tax relief,

Kd(1 - t):

= 5 x (1 - 0.28)

= 3.6%.


Stricter treatment of related tax relief

More strictly, the related tax relief should be factored into the net cost of debt calculation by taking account of any timing differences between the debt servicing cash outflows and the related tax savings.


See also