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Dear sir,
In adjusted present value questions in revision kit, I found that sometimes there is a use of risk free rate and sometimes there is a use of company normal borrowing rate for finding present value of tax shield. Is there choice that anyone i.e., (risk free rate and normal borrowing rate) of them can be used for present value of tax relief or is there any logic behind?
Thank you.
As I explain in my free lectures on APV, there is an argument for using either or the rates (and I explain the reasoning in my lecture). For that reason the examiner always accepts using either of the two rates (even though obviously the final answer will be different) and gives full marks.
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