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APV

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › APV

  • This topic has 1 reply, 2 voices, and was last updated 11 years ago by John Moffat.
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  • May 26, 2014 at 6:50 pm #171025
    jess
    Member
    • Topics: 36
    • Replies: 19
    • ☆☆

    for apv calculation, when government gives us subsidy loan, we have to discount the tax shield on the loan to present value. what rate should we use to discount it? risk free rate or pre tax cost of debt?

    May 26, 2014 at 6:59 pm #171031
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54714
    • ☆☆☆☆☆

    There are arguments for using either of them. (In theory, debt should be risk free and so the two would be the same, but in practice (and in exams) they are not the same).

    The examiner usually uses the risk free rate, but always allows you to use either (even though the final answer will be different). Usually he actually says that in his answers, but he always allows either to be used.

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