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Hi sir, in part (a) when we are calculating cost of loan notes for WACC, shouldn’t we use the ex-interest market value for the loan notes when calculating iRR? In the question it says annual interest has just been paid so 102.34 is the cum-interest market value yet in the answer they 102.34 for year 0.
Yes, we do use the ex-interest market value.
Ex-interest means that the interest has just been paid and therefore the $102.34 is an ex-interest value (not cum interest – that would mean that interest was about to be paid).
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