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Hi
I am really struggling with question one on June 2012’s paper….. the cost of capital is 12.5% how do I use this in the NPV calculation? I have looked at the answers looked at my book and it just doesnt make any sense to me.
thank you
JemmaThis is a very odd question and answer in the way it approaches NPV.
Don’t try to understand the examiner’s answer, but look at the note right at the end of the answer where NPV has been calculated as at the start of the project so that
Time 1 Free cash flow 141, 841/1.125 = 126,080 etc.
As I say, don’t worry about the other way that NPV has been done.
hello , for the same ques i want to know why the int of 8.4% has nt been used to calculate wacc? Y wacc has been taken to be the ccost of capital ?
you should use the formula
(1+r)^-n to calulate the discount factor
Year 1 discount factor (1+0.125)^-1
Year 2 Discount factor (1+0.125)^-2
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