In lecture The Cost of Capital (part 3) – example 10, should the annuity for 5% would have been 5.076? In the lecture you have used 4.917 which is 6%, can you please review this?
Many thanks for the great lectures and sense of humour(::)!!.
In order to calculate an IRR (whether it is for project appraisal or for calculating a cost of debt) we need to guess at two interest rates (any two guesses) and then approximate between them.
If you are not familiar with calculating an IRR, then the F2 and F9 lectures may help you.
Hi sir.This one is regarding MACAULAY DURATION . in bpp text it says when yield decreases duration increases but in an example i did(opentuition notes.ch8.Example4) lowering the yield has now effect on the duration.Why is that ?
hi , I know this is a noob question at this level but why in example 10 when i use 10% and 15% to calculate IRR i get the different value in comparison to what you have used in the question. I recall this has something to do with using one possitive npv and one negative for IRR calculation.But please would u be kind enough to elaborate.Thanks
You can use any two guesses to calculate the IRR, but because the relationship is not linear then different guesses will give slightly different answers. This is not a problem in the exam – you get full marks.
Ideally we would have one positive NPV and one negative, but even that is not essential .
The video is working fine – it must be a problem at your end. If you go to the support page you should find the solution for your device. The link is: https://opentuition.com/support/
In example 10 the an annuity for 6% was incorrectly used that is 4.917. It should be at 5% for 6yrs at 5.076 as the disc rate for 5% in 6 yrs was used. This is where IRR was being calculated for cost of Debt to the company. I know the concept remains the same and was just an error but for future reference i thought i should just mentioned it… the IRR was actually 7.5% not much of a difference any ways
Thanks – I will check the lecture tonight (and the answer at the back of the course notes) and if it is wrong, then I will have it corrected. (I cannot check at the moment because I am away from home).
Your welcome… But mistakes happen sometimes. I only mentioned it so for future reference. However, when i looked at the last lecture on Cost of capital, that is the lecture on EXAMPLE 10 only. The correct rate was used there. But i must say your lecture help me understand the Cost of Capital so well. Thanks a mil. You are doing a great Job. Thanks again.
in the example of 9, he calculated the Ke by using the market value post dividend. is there anything wrong? the formula shows that the market value of shares in it should be ex div.
annette says
Hi John,
In lecture The Cost of Capital (part 3) – example 10, should the annuity for 5% would have been 5.076? In the lecture you have used 4.917 which is 6%, can you please review this?
Many thanks for the great lectures and sense of humour(::)!!.
beatrice says
Hi thanks ive never come across such an elaborate lecturer.
sogan0 says
Hi
i dont get these gueses from 10% and 5% please explain
John Moffat says
Which bit don’t you get?
In order to calculate an IRR (whether it is for project appraisal or for calculating a cost of debt) we need to guess at two interest rates (any two guesses) and then approximate between them.
If you are not familiar with calculating an IRR, then the F2 and F9 lectures may help you.
sogan0 says
so can i stick to 5% and 10% on guesses
John Moffat says
Yes – no problem 馃檪
Mathias says
I am unable to view the video, despite deleting the cookies. I also loaded the latest Adobe Flash player.
However I was able to view the video on another PC.
admin says
No idea why your pc fails to load lectures,, try another browser. Or contact your Internet provider?
ace91 says
Hi sir.This one is regarding MACAULAY DURATION . in bpp text it says when yield decreases duration increases but in an example i did(opentuition notes.ch8.Example4) lowering the yield has now effect on the duration.Why is that ?
ace91 says
hi , I know this is a noob question at this level but why in example 10 when i use 10% and 15% to calculate IRR i get the different value in comparison to what you have used in the question. I recall this has something to do with using one possitive npv and one negative for IRR calculation.But please would u be kind enough to elaborate.Thanks
John Moffat says
You can use any two guesses to calculate the IRR, but because the relationship is not linear then different guesses will give slightly different answers.
This is not a problem in the exam – you get full marks.
Ideally we would have one positive NPV and one negative, but even that is not essential .
vinitha says
Please help…..i keep on getting this message when i click play on the vedio “The page you tried to find does not exist, please choose below:”
John Moffat says
The video is working fine – it must be a problem at your end.
If you go to the support page you should find the solution for your device.
The link is: https://opentuition.com/support/
kellyldr says
In example 10 the an annuity for 6% was incorrectly used that is 4.917. It should be at 5% for 6yrs at 5.076 as the disc rate for 5% in 6 yrs was used. This is where IRR was being calculated for cost of Debt to the company. I know the concept remains the same and was just an error but for future reference i thought i should just mentioned it… the IRR was actually 7.5% not much of a difference any ways
John Moffat says
Thanks – I will check the lecture tonight (and the answer at the back of the course notes) and if it is wrong, then I will have it corrected. (I cannot check at the moment because I am away from home).
I do apologise if I have made a mistake.
kellyldr says
Your welcome… But mistakes happen sometimes. I only mentioned it so for future reference. However, when i looked at the last lecture on Cost of capital, that is the lecture on EXAMPLE 10 only. The correct rate was used there. But i must say your lecture help me understand the Cost of Capital so well. Thanks a mil. You are doing a great Job. Thanks again.
papiasu says
Thank you sir
moeedaftab@hotmail.com says
thank you sir John!
moeedaftab@hotmail.com says
I lik yor teachering styel
nickneouk says
Excellent lecture! Thank you
nyandoro says
I can’t play the videos on my iPad. Does anyone know why and how I can resolve this?
admin says
lectures do play on the ipad. maybe your internet is behind a firewall. contact your internet provider for check this for you
gellisk says
Its very useful to students, but videos are do not opened arising the some errors, please rectify
thank u
admin says
@gellisk, videos play fine
Your PC or your internet connection is the problem
lyford says
@admin, am not able to view video lectures it reads server not found
admin says
@lyford, you are behind a firewall, ask your internet provider for help
niffy99 says
Impressive revision,
utn9 says
Another great work by John with a negligible error. Thanks a lot sir.
walshan says
Were these errors noted and accepted by OT, and if so was the video corrected?
John Moffat says
@walshan, what errors?
1708116acca says
in the example of 9, he calculated the Ke by using the market value post dividend. is there anything wrong? the formula shows that the market value of shares in it should be ex div.
John Moffat says
@1708116acca, post dividend = ex div
mwachilale says
Good staff. The error noted on Annuity factor for 6years at 5%.
jarboshi says
yes, it is on example 10, but it only makes difference of 0.01% in the answer. I got 13.55% as WACC
p4nitemare says
yeap very good revision. a genuine mistake indeed.
rballiram says
the discount factor for the annuity at 6 years for 5% is 5.076.
in this answer where they they get 4.917?
ravisnayanar says
it’s just a genuine mistake. he took 6%, 6 years…