also p3 mock too..

thnks

A co will always be financed by equity, but will sometimes use debt to finance a project. Using apv, the affect of the financing can be identified by splitting out the debt and equity, and identifying the debt benefits as per mogiglianis theory of debt financing, ie is cheaper

You discoint the project first using ke only, then do a reconciliation to apv by deducting issue costs from the npv, add any savings due to subsidised loans etc.. and benefit gained from the tax shield on the debt

Use apv when a project requires separate financing to the rest of the co, to show the benefit of the financing

Asset beta for hotel services = 0.61 x 60%

+ industry beta 0.4 x 40%
Gives beta 0.75 in the answer, surely its 0.53?

Why is it 0.75?

It’s PUT and CALL, not PULL!
Put option is the option (you get the possibility) to SELL something (you put it to the market and someone can buy it).
Call option – you can buy something (you call the market for something).

When you get the problem, say “you are in UK will get the $ payment in, say, 3 monthes”, this means that you use Pounds (since you are in UK), but you will get US Dollars, so you will need to sell the $ you will get in 3 months. But since you are in UK, the basic commodity (or however it’s called) is Pounds – your local currency, so in UK put option is to sell pounds, call option – to buy pounds. So you will need to buy pounds (you sell $ = you buy pounds), which means you need a call option.

email me at smagara@bou.or.ug