Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › APV in Q2 Fubuki Dec 2010
- This topic has 1 reply, 2 voices, and was last updated 6 years ago by John Moffat.
- May 17, 2016 at 8:39 am #315425BinhMember
- Topics: 41
- Replies: 78
In the answer for Q2 Fubuki provided by BPP Rev Kit, they calculated the benefit of subsidy loan as: Value of loan x (i provided by government – i normal) x (1-tax rate). It is the same as provided by Kaplan text book. It means that the effect of lower tax shield reduces the benefit of lower interest loan.
However, in BPP text book and as I asked you before in a recent topic, the benefit is: Value of loan x (i provided by government – i normal).
So what solution is correct?
PS: just one more question about duration, I combined it here to save the space of forum.
In answer provided in BPP Rev Kit for question “AWP Co.”, the PV of each cash flow uses the YTM which is the IRR (Duration = Sum( t x PV (CFt) @ YTM )/ Bond price;t=[1,n])
However, I wonder if we can use the spot yield curve to discount PV of each cash flow to calculate duration, it would save a lot of time as the question has provided the curve! (Duration = Sum ( t x PV(CFt) @ spot of year t)/ Bond price).
I have tried both and the result is just slightly different.May 18, 2016 at 7:24 am #315543John MoffatKeymaster
- Topics: 56
- Replies: 51920
You can either take the full interest (less tax) and then the subsidy is the interest saving less tax.
Of alternatively you can take the net interest, less the tax saving.
The end result will be the same.
With regard to your PS, what you have written is OK 🙂
- You must be logged in to reply to this topic.