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Sir, i want to revise my 2) question because i found the answer to it, that the cost of feasibility has been taken as sunk cost, but if i I would’ve included it Base case NPV calculation would i still get marks for it?
Got your point sir. Thank you 🙂
sir, i further have 2 small queries in the above question only :
1) while calculating the financing side effects in the answer, the issue cost has not been taken net of tax, why is it so?
2) in the question it has been mentioned that feasibility study was commissioned by the directors at a cost of $250,000, but nowhere in the answer have we accounted this figure in our calculations.
thank you in advance for all your help.
Thank you so much! I had spent more than an hour trying to understand the calculation!
Okay, sorry for the inconvenience caused, I didn’t know that, will keep this in mind from now on!
Thanks for the answer, got your point.
The answer is correct it should be 0.7337 only because the contract currency is $, hence we have entred futures market to sell $ in future.
Therefore, if we are selling $s then bank is buying $s from us.
The quotation is 1$ = 0.7337 – 0.7366
(Bid Rate) (Ask rate)
(Bank’s $ Buying Rate) (Bank’s $ selling rate)Since bank is buying $s from us and is giving us Euros in return , that is why bid rate i.e. 0.7337 shall be applicable.
More so why would bank give us more Euros in return for $s, it will put the bank in a worse of position.