am i missing something? problem, question, something, comparable

hanvinh

on Pg 88 , CFA Text Book -Volume 4, in the answer to problem 23, it says MCC is estimated
by YTM on comparable outstanding.But the outstanding debt has a 9% YTM as compared to 7% in the new issue.

My question : Why is 7% YTM used for outstanding debt calculation?

Thanks!

scr879

The weighted average cost of capital is used to determine the pv of future projects. Since the company can no longer issue debt at 9% it would not be reasonable to determine PV based on a rate that is no longer available to the company so the 7% rate is used instead (b/c it is forward looking)

soddy1979

Thanks Anna!
Just got confused with"comparable outstanding ".