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John Moffat.
John Moffat.-
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naveez
- Topics: 15
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Sir, Why do we include the working capital amount of $488(in Y0) as a part of the loan when calculating the issue cost?
Shouldn’t we only take the $14000 to compute the issue cost of the loan like I have done below:
$14000*4/96= $583In contrast with TIPPETLINE(March/June 2018), the issue cost has been computed based on the loan amount borrowed, they have not taken working capital amount into account
when computing the issue cost of the loan.I scratching my head and finding difficult to comprehend this. Please enlighten me Sir!
Thank you in advance for your explanation.
John Moffat
- Topics: 57
- Replies: 49603
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Tippletine specifically says that they will need to finance $30.6M (and so presumably the working capital is coming out of existing funds).
As far as Fubuki is concerned, the fact that the investment is in a foreign country and that the question states that the full amount of the funds required will be raised through debt finance makes it more likely that the funds needed will include the working capital required. However this is really an assumption and is only a minor point – you would not have lost any marks if you had not included the working capital.
naveez
- Topics: 15
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Let’s say if I exclude the working capital amount, what plausible assumption that I should state for this exclusion. Pls advise.
John Moffat
- Topics: 57
- Replies: 49603
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That you have assumed that finance was only raised to cover the capital investment.
my life
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Good evening Sir and sorry for asking that question here. I couldn’t find any other suitable topic to ask. I just want a clarification concerning the Specimen exam (question 3(b) Hav Co :premium based on excess earning”).
I just want to know this: the “PV of annual premium in perpetuity” for Strand Co has been calculated as 159.3/0.07(wacc) giving $2275.7. So I want to know why it’s been divided (by the WACC) instead of simply discounting it at the WACC. What I know is that we usually discount at wacc to get the PV but here it has been divided.John Moffat
- Topics: 57
- Replies: 49603
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In future please start a new thread if you are asking about a different topic or question.
They have discounted at the WACC !!
You should remember from Paper MA and from Paper FM that the discount factor for a perpetuity is 1/r where r is the rate at which we are discounting.
naveez
John Moffat
my life
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