How can I explain your figures without seeing them? You will know from my free lectures for F9 (and for F2) that any IRR calculated using two guesses is only ever an approximation, because the relationship is not linear.

Dear John, Thank you for the brilliant explanation of the question, am just confused about one thing in valuation of debt why do we use the IRR to ascertain the cost of the debt and not the risk free rate of return? and if we were given a cost of capital example 10% could we use that calculate the Present value of the loan note? or we still have to ascertain the IRR? sorry if my question is jumbled up thank you

Steffietheresa, it is because the nominal value of each ordinary share is 50 cents. The other way is to divide the total nominal ordinary shares value of 200 by the nominal value per share of 0,50 which will give us 400 shares then multiply by 5,85. Hope it helps! 200/0.5*5,85=2340.

khulani says

sorry I used a guess of 10% and 5% but the answer looks a bit high. kindly explain

John Moffat says

How can I explain your figures without seeing them? You will know from my free lectures for F9 (and for F2) that any IRR calculated using two guesses is only ever an approximation, because the relationship is not linear.

akeetta says

Thank u sir

John Moffat says

You are welcome 馃檪

just_bilal says

Dear John, Thank you for the brilliant explanation of the question, am just confused about one thing in valuation of debt why do we use the IRR to ascertain the cost of the debt and not the risk free rate of return? and if we were given a cost of capital example 10% could we use that calculate the Present value of the loan note? or we still have to ascertain the IRR?

sorry if my question is jumbled up

thank you

farhana001 says

Hi Sir,

I did not get part b Gearing and financial risk point. Need explanation on that.

Edwin says

Steffietheresa, it is because the nominal value of each ordinary share is 50 cents. The other way is to divide the total nominal ordinary shares value of 200 by the nominal value per share of 0,50 which will give us 400 shares then multiply by 5,85. Hope it helps! 200/0.5*5,85=2340.

steffietheresa says

Hi John, can you please explain why is it a multiply of 2 in the total M.V for equity (200 x 2 x 5.85)

Thank you.

doria says

1 SHARE=$0.5

2 SHARES=$1

400 SHARES = $200

400SHARES @ $5.85