ryanlb

May I add to above. Great explanations overall.

By adding sinking fund provision we can compare cost of amortizing debt such as mortgage
to non-amortizing debt such as coupon paying corporate bond.

Think about this extra interest payment as a payment to reserve which will pay at the end the full amount of outstanding principal.

In other words by adding SFP to mortgage rate you calculated the coupon of the equivalent non-amortizing bond. So, you can use it in WACC formular.