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Hi, for sample answer, the discount factor of 9% is obtained from the ungeared cost of equity derived from working 3 below. Since the base case NPV does not taken into account the financing issues, so that means it is a must to ungear the cost of equity when we want to find the discount factor for NPV calculation?
Thank you.
When using an APV approach, then yes – you must ungear the cost of equity.
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