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Hey John, I wanted to know why the tax shield is discounted at 4% and not the risk free rate in Burung Co qn part a?
As I explain in my free lectures, there are arguments for using either the return on debt or the risk free rate.
The examiner always allows either (even though the end result if obviously different).In theory, the two should be the same (because in theory debt is risk-free) but obviously in exams the two are not the same.
Dear sir,
I understood that i can use risk free rate in this case, is it correct?
If it is correct, which rate should i use ( 10 yrs goverment debt yield 2.5% OR goverment treasury bill 2% ?
Thank you in advance
Tran Thao
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