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Hi you know we would get exactly the same anwser regardless of which method we used, if not specified could we use the APV or would we not get all the marks like we would have had we shown the WACC method.
Thanks
Firstly, you could get the same answer but it would depend on your assumptions and more importantly the fact that the gearing of the project would keep changing because the NPV at the WACC would be the gain to the shareholders. This would change the gearing and mean keep repeating the workings which gets messy.
Regardless of the above, the examiner specifically asks for an APV approach (or effectively asks for it by saying to discount as if all equity financed). Doing anything different from what he asks for will not get the marks – if he asks for APV then he is testing that you understand NPV!!
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