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Oops, yes! That’s what I intended to type sir. So irrespective of the normal borrowing cost, we would discount the installment at the int rate applicablr to the bond.
Thanks 🙂
Oh, will keep that in mind sir. Sorry for combining two diff topics in a single thread. 🙂
So, if the 8.5% loan had to be repaid in 6 annual installments, then we would have divided the value of the loan by the 6 year annuity factor for 8.56%, is that right? (this would have been the case even if the company’s normal borrowing cost was 9%?)
I just realized that the gearing of the property division has already been adjusted for tax, and that’s how the asset beta is 0.625.
But sir, are we considering the market value of equity of the BBS of 6800m to be made up of 2462m and 4338m in respect of the property and retail division? Why so?Ahan. But sir, the asset beta has been calculated using the given equity beta and the existing gearing ratio, and not the new gearing. So I was thought that the given equity beta relates to the present gearing.
So if I had used the asset beta attained above to recalculate the equity beta using the new gearing, would that have been right? Or am I missing something here? 🙁So I should use the return to debt providers (ie, kd without considering tax) in the calculation of kei, right?
Thanks once again sir! 🙂
Went through the lecture sir. You have explained everything so comprehensively!! I couldn’t make heads or tails out of the examiner’s answer. Thanks a lot for the lecture!! Really helped! 😀
The tax paid is computed as above in cashflow statements prepared according to IAS 7. Why should I consider last year’s balance as the tax paid, sir?
Many thanks
Alright sir, will follow your advice. 🙂
In many questions, the contribution per unit of the component transferred to the sub is given. So while I charge the sub for the entire cost of the component, I should only consider the contribution as an inflow to the parent, right? ( I know that the answer to this is apparent from your previous comment, but I want to be sure of what I am supposed to do in the exam 🙂 )
So if the parent sells the subsidiary any component, is that how I am supposed to treat the transaction unless the parent adds on a markup? So that’s the reason only the contribution is considered as an inflow to the parent company, right sir?
And thanks 🙂Oh. I never noticed the formula at the top of table! Very careless of me!
But yes sir, I was referring to Lignum, where the production cash flow in relation to the BSOP model needs to be discounted using an AF in order to arrive at Pa. 🙂
And thanks for your help. 🙂
This was in relation to qn Lignum (Dec ’12) , where the real required rate was 7.692%, and in order to find the PV of the annuity of €6m, a annuity factor using 7.692% was calculated as 1/0.07692 [1 – 1/(1.07692^12) ]
Should do I do the above or can I approximate the DR to 8% and compute the PV of the annuity?
Thank you sir. I watched the lecture and I have now understood how to solve the above problem. Many thanks 😀
Oh haha :D.
So yield to maturity= gross redemption yield?
But in the Pilot paper question (GNT Co), the cost of the bond has not been considered in computing GRY. Only the interest payments and the final redemption amount have been taken into account. But, in another question on the BPP kit (BPP’s own qn), the intial cost of the bond has also been considered in finding out the yield to maturity figure. That’s why I was a lil bewildered and got fooled into thinking that both the terms mean two different things.I didn’t quite grasp what’s going on in the pilot paper answer. Why have they not considered the initial cost of the bond in calculating the GYR?
And thanks a bunch for all your help! 😀
Thank you sir. 🙂
And oops. I do know that we include the scrap value of the asset at the end of it’s useful life. Guess I was overthinking! Really stupid of me for having asked that. Sorry about that silly question. 🙁Also sir, in part b of the same question, we’re asked to compute the duration of the project, which is computed differently to the way we compute Macaulay’s duration. The answer, however is the same using both methods.
I wanted to know if this is the case always (wherein answer under duration method = answer under Macaulay’s method) or if this was a stray coincidence. Also, should I follow the method used here in the answer if the duration is asked for, and use Macaulay’s duration only if the question specifically asks us to compute the duration using Macaulay’s method.Thanks once again 🙂
Please allow me to insinuate myself here. 🙂 So sir, is the kit alone sufficient to score great marks in P7?
