Estimating the Cost of Capital with Debt Financing in a Foreign Currency (Uoc Luong Chi Phi Von Dau Tu Co No Vay Ngoai Te) (Vietnamese Version)

Abstract

Many firms have debt financing in a foreign currency. What are the tax implications of the foreign loan for the calculation of the Weighted Average Cost of Capital (WACC)? With a foreign loan, there are two effects. First, there is the standard tax savings from the interests deduction with the foreign loan. Second, we assume that changes in the value of the loan in the foreign currency can be listed in the income statement ofr tax purposes. In this teaching note, we examine how the WACC must be properly used to take into account both of the effects: The interest deduction and the change in the value of the foreign debt.

Note: The downloadable document is in Vietnamese. The English version is available at http://ssrn.com/abstract=411740

JEL Classification: D61, G31, H43