A Conceptual Look Relevant Rates of return ki= the yield on the company's debt Annual interest on debt B Market value of debt Assumptions Interest paid each and every year · Bond life is infinite Results in the valuation of a perpetual bond No taxes(Note: allows us to focus on just capital structure issues. 17-417-4 A Conceptual Look -- Relevant Rates of Return ki = the yield on the company’s debt Annual interest on debt Market value of debt I B ki = = Assumptions: • Interest paid each and every year • Bond life is infinite • Results in the valuation of a perpetual bond • No taxes (Note: allows us to focus on just capital structure issues.)