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Dear Sir,
I have several question regarding F9 and I would be very thank full to you if you answer them.
Question 1. What will be the impact on WACC if gearing of the company is changed ?
Question 2. Can you please differentiate between WACC and CAPM .
Question 3. A 10% after tax cost of debt is better or 12% after tax cost of debt, similarly 15% cost of equity is better or 20% cost of equity is better for an XYZ company ?
Question 4. Please provide me the link of your lecture where I can understand and clear the concept of Earning Yield, Dividend Yield & Dividend Cover.
Question 5. While calculating EAQ pre-tax cost of capital should be use or post-tax cost of capital ?
Many Thanks in advance.
Regards,
Farzain1. You must watch the lecture on Cost of Capital – the effect of change in gearing. I cannot possibly type out the whole lecture here!
2. Differentiate between???? They are not doing the same thing. You must watch the lectures on WACC and on CAPM. CAPM measure the risk and therefore determines the return shareholders require (and hence cost of equity). WACC is the average of the cost of equity and cost of debt.
3. The lower the better – anybody borrowing money finds lower interest better than higher interest.
4 You need to watch the F3 lectures on financial ratios – this is revision of paper F3.
5 There is no such term as EAQ. If you economic order quantity then the cost of capital is not relevant for calculating the EOQ. If you mean the equivalent annual cost then you use the post-tax cost of capital (as we do for all investment appraisal – not just for replacement questions).
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