Hi,
could you please explain why the answer to this question, regarding the financing side effect, uses 3/97*80 for issue cost? why 97, it is clearly 3% of the gross finance.
secondly, when computing for annuity factor the answer uses the annuity of five years and then nets off the present value of year 1 to arrive at 4 years annuity factor. this results in different values from getting a direct 4-year annuity factor. why even go this long. I found the process odd and wish to know if this is the latest adjustment of how to approach questions of this style.
thanks, john.
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APV. Zhichi co september/december 2021
4y ago#1The finance required will need to cover both the cost of the investment and the issue costs. If the issue costs are 3% of the total finance that leaves 97% to be invested.
There is nothing new about the annuity factor - it has always been like this and is normal discounting. There is a 1 year delay in tax and therefore the tax savings are years 2 to 5 (not 1 to 4).
ooh ok.
I forgot the tax delay.
got it .
thanks.
4y ago#3You are welcome :-)
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