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Hi,
On example 2 and 5 where is the (288) for replacement of non-current assets coming from?On example 3 to calculate the WACC why havent we taken the Kd to be 7% x .75 for the tax saving?
Thanks
If you look at the pro-forma immediately above example 2 in the lecture notes, you will see that we always assume that the amount needed to replace non-current assets is equal to the depreciation, unless told otherwise. The depreciation here is 288.
In example 3, the question says that the cost of debt is 7%. Since it is called the cost of debt, it is already after dealing with the tax saving.
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