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Maybe I expressed it wrongly , I do understand the calculation in Okan , just find it confusing when comes to determine the base currency . Anyway , I have understood what u explained . Thx alot ! <3
My workings for PV of tax shield and subsidy benefit (Milma Co) are as follows :
Annual tax shield on subsidised loan = 150m x 3% x 0.25= 1.125m
1.125m x 11.938 (15 years ,AF@3% ,11.938) =13.4mSubsidy benefit
Interest saved = (7%-3%) x 150m = 6m x AF@7%,9.108 = 54.648m
Tax on interest saved = 6m x 25% = -1.5m x AF@7%,9.108 =-13.662m
PV = 41mAm I doing right ? Because my value of financing effects is different from examiner’s answer , wanna know whether my answer will be accepted or not
Sir , for your second point , u mean we only use subsidised loan rate when we are calculating for Tax shield on subsidised loan just like the examiner gives full credit for using government rate rather than normal borrowing rate in 2018 DEC QUES (Amberle Co ) for calculating tax shield on subsidised loan . Other than this , we should use either normal borrowing rate or risk free rate . Am i right ? Just wanna double confirm on this TQQ
Yeap I did watched your free lectures , that’s why I need to make myself more clear about this . If that’s the case , doesn’t it makes the ARD to be base currency as I’m using JPY/ARD ( which quoted against ARD ) for Washi ques . This is the part where I’m confused as I learned it from your free lectures that to determine the base currency , we have to look at the exchange rate on which currency quoted against which currency. For example , USD quoted against pound (US/pound) , thus pound will be our base currency isnt it ?
I understand about the Okan does not required cross rate . But I don’t understand why they use 1.04/1.02 instead of 1.02/1.04 because as far as I know in that ques YR should be the base currency thus 1.02/1.04 . I dk which part of it i messed up
John Moffat wrote:Yes you are correct.
Sir , can u take a look at 2019 sept/dec (Okan Co) , the inflation rate for UK and Yasailand are 2% and 4% . But the answer shows that the ppp calculation is 3.03 x 1.04/1.02 and the explanation was because its stated the exchange rate is Y$/UK (3.03 per 1) , thus the Uk currency is the base currency so thats why it is 1.04 /1.02 instead of 1.02/1.04.
So in this case of Washi Co , U said that both answers will be accepted regardless of using ARD/JPY or JPY/ARD , I was wondering if i were to use JPY/ARD , shouldnt it be 1.35x 1.015/1.09 as ARD being the base currency ? I would like to know the concept behind it or I think I might missed something .
Sir , as u said ” It doesn’t matter which way round you quote the rate. What matters is that you are doing the conversion correctly. ” which means if I use cross rate JPY/ARD instead of ARD/JPY , even the answer is different I will still get marks right ?
If I use ARD per JPY ,
Expected ARD/JPY conversion spot rate in 12 months = 0·70 x 1·09/1·015 = 0·75
Investment amount required = ARD 10,150m/0·75 = JPY 13,533mIf I use JPY per ARD
Expected ARD/JPY conversion spot rate in 12 months = 1.35 x 1.09/1.015 = 1.45
Investment amount required = ARD 10150m x 1.45 = JPY 14717.5mBoth answers will be accepted . Am I right ? TQ in advance !
