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Fubuki – 2010- Discount tax shield impact

This topic has 1 reply, 2 voices, and was last updated 5 years ago by John Moffat.

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June 20, 2020 at 3:16 pm #574343
ngoquynh1224
Member
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Hi John,
Thank you for your support all the time.
Regarding Fubuki question, should the tax benefit from debt be discount at average cost of debt?
Which is:
5.5%x 80% + 7.5% x 20% = 5.9%
Thank you!
June 20, 2020 at 6:02 pm #574360
John Moffat
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No. You either discount at the normal borrowing rate (which here is 7.5%) or at the risk free rates (which here is 4.5%). The examiner always accepts either (even though obviously the final answer is different).
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