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Hi,
In order to calculate gearing(D/E), the equity include ordinary shares, retained earning but exclude reserves?If gearing is to be calculated using book values, then equity includes all reserves (not just retained earnings).
More commonly gearing is calculated using market values, in which case the MV of equity effectively includes reserves anyway as I explain in my free lectures.
Thanks for the explanation!
I have another question.
If question requirement need us to calculate a nominal NPV and also real NPV.
Since the general rate of inflation is given, do we deflate ‘cash before tax’ or ‘net cashflow’?I am confused about this because in the latest exam (MarchJune2019,Q32 Pinks Co) deflate the profit before tax BUT in Dec 2013 Q1 Darn Co deflate the net cashflow.
Past year question SepDec 2019 Q32(a)(ii)(iii), the model answer shows a separate working between inventory management costs and purchase price. I do read the examiner’s report saying that there is a change in inventory level and would change the cost of financing working capital and the inclusion of the cost of overdraft rate at 3%. The examiner’s report say this is the common mistakes faced by candidates. But why this workings/principle do not apply in PYQ Sep2016 Q31 as there is a change in inventory level and inclusion of overdraft rate at 4%.
May i know which one is true or the differences between this 2 questions.
In future you must start a new thread when asking about a different topic. The reason is that our answers are to benefit all students and many use the search box to see if their problem has already been dealt with.
The examiner has not been consistent in his answers. In the 2016 question he assumed that the holding cost of $1.06 includes the interest element.
In the 2019 question he did not do this and calculated the interest separately. However he did state in his answer that adding the interest element to the holding cost (and using $0.63 as the holding cost) as we normally would do as explained in my free lectures on this), would still have got full marks.
Sorry…. i will create new topic next time. Back to the question, how to get the $0.63
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