• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
Free ACCA & CIMA online courses from OpenTuition

Free ACCA & CIMA online courses from OpenTuition

Free Notes, Lectures, Tests and Forums for ACCA and CIMA exams

  • ACCA
  • CIMA
  • FIA
  • OBU
  • Books
  • Forums
  • Ask AI
  • Search
  • Register
  • Login
  • ACCA Forums
  • Ask ACCA Tutor
  • CIMA Forums
  • Ask CIMA Tutor
  • FIA
  • OBU
  • Buy/Sell Books
  • All Forums
  • Latest Topics

20% off ACCA & CIMA Books

OpenTuition recommends the new interactive BPP books for September 2025 exams.
Get your discount code >>

Chapter 12 The Impact of Financing

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Chapter 12 The Impact of Financing

  • This topic has 4 replies, 2 voices, and was last updated 13 years ago by John Moffat.
Viewing 5 posts - 1 through 5 (of 5 total)
  • Author
    Posts
  • June 5, 2012 at 3:40 am #53115
    garlyliu
    Member
    • Topics: 2
    • Replies: 3
    • ☆

    Dear Tutor,
    I have a question regarding example 2 of the course note page 60 (PDF file).
    For part (b), i can calculate the tax saving of 0.45M (p.a.) and the maximum saving would be 0.45 x(1/5%)=9M (as infinity). so APV=28.64M.
    But if i use WACC method, the geared Ke =24.5% and WACC=18.2%. the NPV is 24.52M.
    Would you please advise why the results are different and which part I did wrong?
    Thanks a lot!

    June 5, 2012 at 4:12 am #99210
    garlyliu
    Member
    • Topics: 2
    • Replies: 3
    • ☆

    Oh i suddenly figure out what i missed.
    Sld the cash flow for part (b) be as follows:
    Year0:(100)
    1:40.45
    2:40.45
    3:40.45
    4:40.45
    5:40.45
    6-infinity:0.45(p.a.)
    For Year1-5, discounted by 18.2%(calculated WACC) and also need to add 0.45/(18.2%)?
    So total gain for Part(b)=28.4?
    Pls advise if i find the correct answer, thanks!
    :

    June 5, 2012 at 8:49 am #99211
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    The problem is that the value of the equity will increase by the gain from the project. If we raise the money 70% equity, then because of the gain the equity will end up being more than 70%! This is what complicates it 🙂

    June 6, 2012 at 9:43 am #99212
    garlyliu
    Member
    • Topics: 2
    • Replies: 3
    • ☆

    OIC, so i’d better always use APV model. Thanks a lot!

    June 6, 2012 at 12:34 pm #99213
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    You are welcome 🙂

  • Author
    Posts
Viewing 5 posts - 1 through 5 (of 5 total)
  • You must be logged in to reply to this topic.
Log In

Primary Sidebar

Donate
If you have benefited from our materials, please donate

ACCA News:

ACCA My Exam Performance for non-variant

Applied Skills exams is available NOW

ACCA Options:  “Read the Mind of the Marker” articles

Subscribe to ACCA’s Student Accountant Direct

ACCA CBE 2025 Exams

How was your exam, and what was the exam result?

BT CBE exam was.. | MA CBE exam was..
FA CBE exam was.. | LW CBE exam was..

Donate

If you have benefited from OpenTuition please donate.

PQ Magazine

Latest Comments

  • Jherddie on CIMA E3 Chapter 8 Test
  • umangkumbhat on What is Assurance? – ACCA Audit and Assurance (AA)
  • ahmadhoney on How to register with ACCA?
  • John Moffat on Interest rate risk management (1) Part 5 – ACCA (AFM) lectures
  • osman-the-zephyr@ on MA Chapter 1 Questions Accounting for Management

Copyright © 2025 · Support · Contact · Advertising · OpenLicense · About · Sitemap · Comments · Log in