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Sir, I have two questions here:
a) the timing of tax saving on capital allowances. If tax is paid in same year then I usumally asume that tax saving will be the year after initial investment: so if 6.2mln is in 2009, then tax saving will start from 2010. However in the solution it starts from 2009.b) In part d when calculating option value, Pa (ex. div)=P0 – PV of dividend using risk free rate (25/1.06).
I can see no logic here, could you please clarify this part to me.
a) Time 0, time 1 etc. are not years – they are points in time that are 1 year apart.
The investment is on 31 December 2009 – time 1.
The capital allowances will be calculated at the end of the accounting period when the money is spent – so will be calculated on 31 December 2009.Given that there is no delay in tax, they will get the benefit of the allowances at time 1 as well.
b) I only have the original exam question, and in the original question there is no part (d) to the question 🙂
Thank you, clear with part a.
Companies shares have just come ex-div and have a current market price of 610 cnet. Dividend paid was 25 cent per share a level that has stayed const for the last 3 years. Assume diviends are paid only annualy.
Risk free rate 6%But again – there was no part (d) in the original question, and you have not said what the question wanted.
okay okay, we need to calculate Pa for the black sholse model 🙂 Hope this time I gave all the info 🙂
Sorry but I cannot answer questions without seeing the whole question. There was no part (d) in the original exam question, and (unless I am being stupid) I cannot find this question in the BPP Revision Kit either.
If it is in the current edition of the BPP Revision Kit, then tell me the number of the question. Otherwise, I am sorry, but you are going to have to ask whoever the publisher is of your Kit.
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