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Dear Mr Moffat.
We cant borrow more than the debt capacity. A statement examiner loves to write that both are equal
I suppose the purpose of it is to link it with actual amount borrowed and theoretical debt capacity. Something I totally failed to understand from Kaplan text.
Could you please mention the lecture number in which you covered this aspect or would be truly grateful if u could explain this aspect with the help of Numbers
Ok I think I’ve just got it. What it is trying to say . Suppose we already have raised 100 debt and for our new project we raised 100 more.
Debt capacity becomes 200 and the tax benefit from interest applies on 200 rather than project specific 100 raised
Now I am wondering, how would the examiner test this aspect in a project appraisal question.
Like which part of calculation does it impact upon.It impacts on adjust present value calculations (and I explain it in my lectures on this).
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