Session 7: Defining and estimating the cost of debt. What is debt?. General Rule: Debt generally has the following characteristics: Commitment to make fixed payments in the future The fixed payments are tax deductible
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Interest Coverage Ratio = EBIT / Interest Expenses
Disney, Market Cap > $ 5 billion: 8.31 AA
Aracruz: Market Cap< $5 billion: 3.70 BB+
Tata: Market Cap< $ 5 billion: 5.15 A-
Bookscape: Market Cap<$5 billion: 6.22 A
= 4% + 3% + 3% = 10%