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ramya says

Sir,

The Debt : Equity ratio is 0.4 as per the example. Please explain me how did you work out the Vd as 40% and Ve as 100% ?

I have worked out the Ke as 0.15+0.7 x(0.15-0.08)x 0.4/0.6 = 18.26%

and WACC 13.2%

John Moffat says

If the ratio of debt to equity is 0.4, then if equity is 100 then debt must be 0.4 x 100 = 40.

(You are treating it as if debt to debit+equity is 0.4!)

rmracca says

Hi Tutor ,

In the example for debt/equity ratio 0.4 you said debt is 40% and equity is 60% , so if the D/E =0.6 does that imply the debt is 60% and equity 40%? and if D/E 0.25 – debt is 25% and equity 75%?

John Moffat says

I don’t think that I did say that, and I certainly used the correct figures in the example.

A debt/equity ratio of 0.4 does not mean that debt is 40% and equity 60% (if that was the case, the ratio would be 40/60!)

rmracca says

Hi Tutor ,

My apologies in advance for asking a silly question.For a given gearing ratio ( Vd/Ve ) = 0.4 , how did you work out the Vd as 40% and Ve as 100% ?

zee90 says

sir is there a lecture on NPV in foreign currency ???

John Moffat says

No – there is not a specific lecture.

However the only extra technique needed is to be able to forecast future exchange rates using the purchasing power parity formula. This was covered in F9 and there is a chapter revising it in the P4 course notes.

Otherwise it is a question is setting up the foreign cash flows in exactly the normal way, but in the foreign currency. Then converting the foreign currency to the home currency using the forecast exchange rates. Then adding any other cash flows that there may be in the home currency, and then discounting.

It can get very messy, but the problem is more just the arithmetic involved then any extra special technique.

zee90 says

thank you SIR

Naga Praveen says

The typing mistake which is mentioned in the lecture in the formula for the cost of equity is not rectified in the course notes.

Thank You

quoiquoi says

You put my lecturers to shame with your skill at explaining things. I think it’s because you undoubtedly understand (extremely well) what it is you are teaching.Thanks so much

kezeala says

I am already looking forward to the December 2012 Diet with great hope. Thanks for opentuition.com

slobodanm says

very good