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Is this happening to remote based exam only?
Even center based exam must try to log into the students account right?My exam was supposed to start from 11 A.M. Still not able to access. Been trying for the last two hours………
I did watch your video lectures and i got the M&M theory.
I have read somewhere that the reason behind us not taking the interest is because it is accounted in the discounting rate. So subtracting the interest will be wrong. And i get that point.
When we use APV, just like the NPV we don’t subtract the interest itself but the interest saved in the process. So i am thinking like where does the interest is accounted for. Is it the discounting used while calculating the base case NPV or is it accounted in the discounting of financial impact or a combination of both.
I thought that when we use the base case NPV, we use the ungeared cost of Equity as there is no gearing impact. But as we are also adding the risk free rate of return in the CAPM model then we might be also accounting for the risk free interest rate in it. So in the base case NPV when we use the ungeared cost of equity we might be also taking into the risk free rate of return. That’s how my thought process goes
I just want to get clarity that in which discounting rate the interest is accounted for.
I was just doing FUBUKI CO (DEC 10). This one is a 10 year old paper compared to the 20 year year old paper we were discussing right now.
In this question too while doing the APV we account for the actual interest and then find their tax benefit. After that while doing the subsidized loan we take the interest saved + the tax saving lost.
I still haven’t figure out why we are deducting the tax saving when the tax part of subsidized loan is never part of the picture.
I have done many questions based on APV but all of them does the way i am not able to understand. So i have come to the conclusion that my logic might be wrong. But i am not satisfied with the reason behind it.
One more thing i wanted to ask you is that the reason behind we taking tax benefit of interest and not the interest itself(as this will also be a financing element) is that while calculating the base case NPV we have already accounted for the normal interest in the discount rate? Is this logic right?
Thank you for the quick reply.
Sorry for adding to this post after 3 years, but i still do have some doubts about your answer.
First you are contradicting your statement made in this topic: https://opentuition.com/topic/apv-subsidy-benefit/
In this you have told the tax relief on actual interest has already been paid so the tax relief lost on subsidized loan shouldn’t be taken. And so i doubt why you are ignoring this here.And if you are right about this i feel like you will account for the tax lost twice.
My thought process goes like this and it can be confusing but please clear this doubt for me.So according to you Interest on 4M should have been 320,000 with a tax saving of 96000. But because of using the subsidized loan we only need to pay 240,000 as interest which will give 72,000 tax saving.
So by taking the subsidized loan we are saving 80,000 as interest and 24,000 tax saving lost and therefore a net saving of 56,000.In the end we are saving 120,000(5,000,000*.08*.3) tax on the normal loan, 72,000 on the subsidized loan and a tax saving loss of 24,000.
Adding all 120,000+72,000-24,000 = 168,000 of tax is saved.
The max tax saving could theoretically be 9,00,000*.08*.3=216,000.
So base on the above to the tax lost is 216,000-168,000= 48,000 which is 2 times that of tax saving lost.
If the tax saving lost has not been accounted then the it will become 216,000 – 192,000= 24,000 which is the actual tax saving lost.I know there is a lot of numerical in this but i can only prove my point this way.
And my point is if we are accounting the tax saved on actual interest then while calculating we doesn’t need to account for the tax saving lost cause we have already accounted that in our calculation.
