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APV

This topic has 1 reply, 2 voices, and was last updated 9 years ago by John Moffat.

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August 30, 2016 at 9:43 am #336195
6shahir
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to calculate the annuity figure at a discount factor, does it have to be the normal borrowing rate or pre tax rate of debt?
june 2013, q1???
they have taken 7% this is the normal borrowing rate
August 30, 2016 at 2:38 pm #336270
John Moffat
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You can discount the tax shield on the debt at either the risk free rate, or the pre-tax cost of debt.
In theory the two would be the same, but in practice they are not, and the examiner always accepts either (even though they obviously give different results).
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