Quick cost of debt question

[skyhr]

Hi,

In the finance 101 vid, you mention that the cost of debt, in theory, is the incremental marginal borrowing rate - the more one borrows, the higher the risk and thus rate. But we must use the current yield to maturity as the next best answer because the marginal rate is impossible to predict.

This might sound dumb, but the YTM for which instrument are we using? And I thought that the cost of debt was a function of the YTM _and_ the credit ratings for the company? How exactly does this work and how do we as analysts find this number?

[wsthost]

Please make sure to post this in the correct forum. Since you are referencing a specific course, in future, please post in the WST Self-Study topics.

Answer: Use the YTM of the weighted average YTM of all of that company's existing debt outstanding. Obviously this (and WACC) only applies to going concerns, not those in trouble.

You can find YTM on any standard Bloomberg terminal by typing in TICKER <CORP> [GO]