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Good day tutor,
When calculating the financing side effects for APV questions, should we write down our assumptions for choosing Risk free rate or cost of debt? If yes, how should we phrase our assumptions?
“Since tax relief is allowed by the government, it should be discounted at Rf”?
There is no need to write down the assumption – the examiner always accepts either.
Just to cover yourself in case you accidentally picked up a completely incorrect rate, I would write in brackets ‘the risk free rate’ or ‘the return on debt’ (whichever you choose to use) just so the marker can still give you credit for trying to do the right thing, even if you made a silly mistake.
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