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Ok got it.. that term for ungeared Ke got me confused.
Hence we use that ungeared Ke in view to find the project’s base case NPV (without taking any debt into consideration).
Hello John,
In FCFe we deduct interest while calculating the free cash flows.
In FCF we do not deduct interest while calculating the free cash flows.
But in Mlima Co, we are using ungeared Ke. Doesn’t that mean we are doing the FCFe ? The requirement says to use the FCF methodology and the cost of capital calculated in part (i). And the latter is Ke ungeared.
Please clarify.
Hello John,
In Tramont Co, for the first year of operation, there is a loss of GR 22,200 and tax is not computed on this amount (taxable amount is nil). However, in the question of Sleepon Hotels, though there is a loss, tax is calculated and the amount is added (instead of being deducted) to the taxable profit (should I say taxable loss).
Please clarify on the above.
Hello John,
From the last part of the FDI, how do we arrive at the figures for extra tax and the remittables from B ?
Hello John,
I have done the following for year 3:
2000 (principal) @ spot 85.40 = 23.42
ADD
658.32 (remainder) @ spot year 3 129.88 = 5.07
The above equals 28.48 while the answer as per exam kit equals 25.75.
Kindly clarify on the above please.
Hello John,
In part a (i), why do we choose March futures contract at 93.88 instead of September futures contract of 93.97 ?
I guess we have to look the month nearer to which we are borrowing rather than the month to which we are making repayment. Right? (Repayment being made on 01 July, hence my logic to use September futures contract).
However, if we were hedging currency using futures, then we would have chosen the futures contract which is nearer to payment / receipt date? In this question we are hedging Interest rates, right?