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no.for the loan it was variable…..so you just add the value of the loan in the total value of the debt…….Can u remember what was the question for 3 marks in the q3.2?
@demetrios21780 said:
no.for the loan it was variable…..so you just add the value of the loan in the total value of the debt…….Can u remember what was the question for 3 marks in the q3.2?So for the NPV question,
a) Calculate NPV (9 marks)
b) Calculate Payback (2 marks)
c) Discuss acceptance of projects (3 marks)
d) Discuss directors views on project appraisal **I think it was something along these lines I believe I ended up writing pros and cons of both NPV and Payback** (6 marks)@mariia21 said:
Hi everyone, I have just got the answer from “Ask the tutor” section reg variable loan rate:“It depends what other information there is in the question.
If you are given the current interest rate then you would use that (obviously net of tax relief). If you are not given the current interest rate but there was other debt borrowing, then you would use the cost of the other debt borrowing.
But again, so much depends on what other information there is in the question.”
So then I assume it should have been the cost from the other loan then! It didn’t mention any interest at all, I was trying to find a percentage to hold onto for dear life and found nothing! This would probably only be around a mark if it’s just copying the same % over, so it shouldn’t be too bad!
The question about either conservative or aggressie I chose aggressive because the question states 3M for flunctuating current asset, 4M for permanent current asset and 8M for permanent non-current asset and the company is financed by 5M short term funds and 10M long term funds….
A conservative person would finance flunctuating current asset, permanent current asset and permanent non current asset with long term funds while a moderate investor would finance all permanent asset both current and non current with long term funds while flunctuating asset with short term funds. An aggressive person on the other hand not only finance all flunctuating assets with short term funds but so also are part of permanent current asset financed by short term funds and the remainder are financed by long term fund while all permanent non current asset are financed by long term funds.
So in the question we have 10M longterm fund out of which 8M will finance non current asset, 2M will finance part of permanent current asset. 5M short term fund will finance all 3M flunctuating asset while 2M will finance the rest of permanent current asset.
So it’s definitely an aggressive approach!
For the cost of bank loan we use cost of other similar loans if we r to look for a cost of debt with floating or variable rate!
so 5.6%
@shafeeibrahim7575 said:
Guys can anyone remember what is the B question in the q31 wacc?
Something to do with importance/instances of the wacc for the investment appraisal ?? A 3 marks theory question thank youWhy using WACC is not the most appropriate way of discounting?
So assumptions for WACC (Business risk same / project relatively small) vs CAPM project specific / new project has different risk attached is better to use.
The questions states under what circumstances can WACC b used for project appraisals. In others words, it’s asking about the assumptions of WACC which are project is small in size relative to the company, same capital structure and same business risk!
I Also have Moderate because it thought it was not convincing aggressive or conservative. but I also figured when finally deciding its in the middle than the last trip up would be what terminology as they put another word also “mid-term” or something. So I thought if it was aggresive or conservative maybe they would use a similar word to trip you up. Just a wild guess though
Hi, if I am not mistaken, the second question was – should we accept or reject the project and the third – limitations of directors’ benchmarks – I wrote about problems and limitations of DPBP there, as NPV was positive.
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