I need to calculate WACC for copany operating in the coutry with islamic finance system. I used build-up method to calculate cost of equity. But still searching for cost of debt in the economy. Has anybody faced the same problem? Any ideas how cost of debt can be determined for the economy with financial system based on islamic finance?
Based on my research, I found out that there are 2 types loans availlable in Islamic finance: transaction based and P&L sharing. Depending on the availlable bank products in the country that can be used by the country. the profit rates or transaction type prodcts only (if company is eligible to use these type of products) determined by the Central bank can be used as cost of debt. If company is not eligible using transaction type products,then cost of equity should be used as WACC. Moreover in case of if company is eligible for transaction type products, the debt to equity ratio should be constrainted by the amount of tangible assets of the company. As transaction type products can only be used for tangible asset purchase.
Any comments are more than appreciated.