COST OF LONG TERM DEBT
External borrowings or debt instruments do not confers ownership to the providers of finance. The providers of the debt fund do not participate in the affairs of the company but enjoys the charge on the profit before taxes. Long term debt includes long term loans from the financial institutions, capital from issuing debentures or bonds etc. (In the next chapter we will discuss in detail about the sources of long term debt.).
As discussed above the external borrowing or debt includes long term loan from financial institutions, issuance of debt instruments like debentures or bonds etc. The calculation of cost of loan from a financial institution is similar to that of redeemable debentures. Here we confine our discussion of cost debt to Debentures or Bonds only.
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