Chapter 17 Example 10 of the lecture notes

Hie there John again.

I think there is a printing error with the answer from Example 10 of the lecture notes.

I have correctly calculated my Equity required rate of return to be 14.75% and I have calculated my Debt required rate of return to be 10.1355% (I ignored the effects of Tax in my IRR computation) using discounting factors of 10% and 12% , without deducting Tax for Interest payments.

For the WACC I can see that there might have been a mix up with the answer from Example 9,as the Market Values for this exercise for Equity and Debt from my calculations were $32 million ($3.20*10 000 000) for Equity and $6.3 million (1.05*6 000 000) for Debt.

*However having ignored Tax in my computation of Debt required rate of return , my *Kd* in the WACC formula was net of Tax (30%) ,basically 10.1355%*(1-0.3)= 7.09485% (I DONT KNOW IF THIS IS ACCEPTABLE OR NOT)*