[laurelin186]

Hi Kim,
Thanks for you quick reply.
You are right: it was not denied but I wasn’t provided with the chatbox so I was afraid to be disqualified if I just left the desk without letting them know.

[laurelin186]

Sorry John: just realized that the first step is not discounting but compounding.

Please ignore my query.

[laurelin186]

Hi John,

Looking at the solution of the tax shield on bank loan it seems like the cashflow has been discounting twice:

1) As you have just said the repayment on the bank loan is calculated by dividing $70m by the 4 year annuity factor at 8%;

2) Also once we have found the tax relief for each year the discount factor 8% is applied again;

Can you please explain we couldn’t just assume that the repayment was $18m per year ($70m/4) and than apply the discount rate as per point 2?

Thanks

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