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CIMA P3 Chapter 9 Test

VIVA

Reader Interactions

Comments

  1. dhanalakshmi96 says

    October 10, 2019 at 5:39 pm

    please provide the answer for question 2

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    • Ken Garrett says

      October 10, 2019 at 8:38 pm

      Systematic risk is less than market risk

      Asset Beta is less than Equity Beta.

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  2. motlanalo says

    October 24, 2017 at 3:58 pm

    Hi Gromit

    Please assist on question 5. What is the Base Case NPV? Please see my workings and advise where I went wrong
    1.Base NPV $130m
    2. (a) Interest on Tax shield = Tax rate x Pre tax borrowing rate x Debt
    = 0.25 x 0.05 x $200
    =$2.5
    2.(b) PV of tax shield = Interest Tax Shield / Pre tax borrowing
    =$2.5/0.05
    =$50
    3.APV = Base case NPV + PV of tax shield
    = $130+$50
    =$180

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  3. msj4396 says

    March 21, 2017 at 12:52 pm

    In question 5, why are we using risk free rate of 5% instead of 7% which is the actual rate of debt?

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    • Ken Garrett says

      March 22, 2017 at 7:10 pm

      The rule is that you always discount the finance flows using the pre-tax rate appropriate to the type of finance. Although the actual finance is at 7%, it really should be at 5%. If you were to discount the cost of the loan at 7% you would not capture its true cost.

      It might be easier to see if the actual rate had been 3%. Then you would have to discount the finance flows at 5% and that would result in a positive NPV (even ignoring tax) and that would show that the cheap loan finance gives an advantage.

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      • bwongani says

        August 3, 2017 at 1:23 pm

        Hi Gromit,

        Am I missing something on question 3. What is the question asking us to calculate

  4. panawala says

    September 24, 2016 at 6:07 am

    If you don’t pass the test …. it does not not show “Review Test” but only shows “Retake Test”

    Kindly provide “Review Test” option if one fails.

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    • sherazsarwar says

      February 24, 2017 at 7:25 pm

      agreed. This will help to evaluate better

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    • bwongani says

      August 3, 2017 at 1:19 pm

      Hi Panawala,
      Please go to print you will be able to see the results.

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