Home › Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA Advanced Financial Management (AFM) Exams › Fubuki co december 2010
- January 20, 2020 at 8:51 am
Please tell how to calulate the cost of debt for calculating present value of tax savings from issue cost ….how i calculated is ( 80%×5.5%)+(7.5×20%)= 6% but they have used 4.5% and also told that 7.5% can also be usedJanuary 20, 2020 at 2:58 pm
For APV calculations the tax saving is discounted either at the risk-free rate (which is given in the question (government debt) as 4.5% or at the cost of debt which is 7.5%.
The examiner always accepts using either of the two rates, because there are arguments for both.
I do explain this in my free lectures on APV.January 20, 2020 at 11:19 pm
So i can use any one of them like normal borrowing rate or risk free rate as cost of debt for APV questionsJanuary 21, 2020 at 8:18 am
Yes – we use either the normal cost of borrowing or the risk free rate. Using either of the two gets full marks (but always state which one you are using).
Again, I explain the arguments for both in my free lectures.
You must be logged in to reply to this topic.