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hi sir,
in the above question second paragraph it said the government will subsidize 80% of the 14,480,000 at 200 basis points below fubuki kd and fubuki can borrow at risk free rate (4.5%) +300 basis points.from my understanding in the tax shield computation,
14,480,000*80% *4.6%(subsidised interest cost)* 25% (tax rate)
14,480,000*20% *4.8% (real interest cost) * 25%.
the problem is the model answer did it quite differently and i think our diffrences is in the basis issues. im taking 300 basis points as 0.3 and 200 basis points as 0.2 but im not sure how the model amswer deals with it.
I hardly think that you really mean December 2015 ( if you do, then you are better at guessing that I am ).
Please tell me which exam it really is from, so that then I can find it and try and give you a proper
answer 🙂1 basis point is 0.01%, so 300 basis points is 3% and 200 basis points is 2%
So the real interest rate is 7.5% and the subsidised rate is 2% less than 7.5% (i.e. 5.5%)
why was the issue cost dealt with that way.
it was 4/96 * 14488.
i was thinking its just simple 4%*14488.
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