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Good day,
Please advice which is correct:
In calculating the sided effects of borrowing for APV, :
1.) Is it the Present value of Issue cost to firm ( Issued cost x 1-T)
OR
2.) Issued cost only without the tax relief.I am a little troubled as the examiner’s answer has number 2 above, if I used number 1 above, what do you suppose would be the penalty?.
It depends on the wording of the question.
Often it is not completely clear in the wording and so if you are not sure then state your assumption. Unless you have completely misread the question you will then still get the marks (and even if you had misread you would probably only lose just one mark).
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