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Hello Sir ,
For the purpose of calculating the tax shield on subsidies loan. Should we use the net amount after deducting the issue cost Or the gross amount .
In the answer they used the net amount of 80 million.Thank in advance
You use the amount of the loan. Whether it is net or gross of the issue costs depends on the wording in the question. If the wording is not clear then (as always in Paper AFM) state your assumption.
There is rarely just one correct answer to Paper AFM questions. It depends on the assumptions you make (just as it would in real life), which is why it is so important to always state your assumptions.Thanks for you quick reply ,
Another question If the project raise the debt capacity of the company ( we will calculate the tax shield based on the raised debt capacity) but what about the subsidies loan . Example if a company have initial investment of 8 million ( 2 million will be funded from a long term loan 6% redeemable after 4 years and 6 million from subsidies loan at a rate of 4.5%) and the project is expected to increase the debt capacity to 20 million
Tax 30%For the calculation of tax shield of loan interest ( we will based our calculation on the 20 million )
But for the purpose of calculating the tax shield and subsidy benefit we will based the calculation on the 6 million ??
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