1. avatar says

    Hello Sir, Just wanna ask one thing while calculating cost of debt, you have assumed the interest to be 7 p.a. shouldn’t it be 10? because in example 8, while calculating the same thing you have ignored tax. I’m abit confused where we should ignore tax and where we should consider it. Waiting for your answer.
    Thanking you in anticipation.
    Rehan :)

    • Profile photo of John Moffat says

      I think you must have skipped through the lecture too quickly (or else you have not downloaded the course notes, which makes the lecture impossible!).

      When we are calculating the return to the investor then tax is not relevant – they investor receives the full interest.

      When we are calculating the cost to the company then tax is relevant – the company gets tax relief on the interest which makes the net cost lower.

      I assume that you have downloaded the Course Notes (otherwise it is pointless watching the lectures :-) ) in which case you will see that the requirements for both examples are (a) calculate the return to investors, and (b) calculate the cost of debt to the company.

      I have done the same thing in both examples.

  2. avatar says

    Yeah John! I remember waac formulae was at 2 places in investment appraisal questions. 1 was just easy formuale, the other time it was added with capm( project-specific cost)…!

    • Profile photo of John Moffat says

      Not quite. There is only one way of calculating the WACC.
      The calculation of the cost of equity can be in two ways – using the dividend growth model or using the capital asset pricing model (depending on the information given) – both are covered in our Course Notes and lectures.

  3. avatar says

    Dear John,

    In example 10 of chapter 17 of OT notes – IRR= 5%+12.59/25.06*5%
    I’m bit confused because we first discounted at10% and then we guessed d.f @ 5% because of negative NPV at 10%, comparing this against example 8 shouldn’t IRR be 10%+12.59/25.06*5%

    I’m not sure why you’ve used 5% instead of 10%. Please explain

    Looking forward to your reply.



  4. avatar says

    Dear Sir John Moffart,

    You just make things so simple that i now have confidence in mastering this subject. I like it when, in your humour, you pick on Peter, Valentino, Andrea and ‘Hello, Hello’ for lagging in their attention (smiling…) Your lectures are just soooo joyful and beneficial to hear and watch.

    You are indeed a gem and a great asset to producing future generations of capable accountants!
    Please continue with your antics and style of lecturing. They are very effective and I just love them…..

  5. avatar says

    5% Preference shares ($1 nominal value) 10

    the ex-dividend market value of the preference
    shares is $6·25 million

    what will be the cost of preference shares ????????
    thank you

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