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in this question for disc rate
1st after using capm and finding equity beta for Haizum .i substitue the values of eqty and debt and then calculaye asset beta after which the asset beta = eqty b of fubuki and then reusing the capm will end up with a disc rate ,since it is all eqty financed for calculation of disc rate for npv.
isnt this correct?why are we doing this
Issue costs 4/96 × $14,488
instead of just calculating 4%*14488What you write about the discount rate is correct because we are taking an APV approach.
With regard to the issue costs, the wording of the question is not clear and so you could have calculated the issue costs either way. Obviously the final answer would be a little different, but the examiners answer makes it clear that full credit would be given for doing it either way.
Given the wording of the question it is better to assume that the total debt raised is 15,092 and to calculate the tax shield on this full amount.
The examiner makes it clear in his answer (in bold immediately below the calculations) that using 15,092 (rather than 14,488) would be given full credit.
Why disposable value subtracted from the cost while calculating taxable depreciation on straight line method? Is it wrong if we calculate taxable deprecation as 750 (3000/4) instead of 650 (2600/4)?
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