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What clues would one get when trying to determine if they need to do an NPV calculation or an APV calculation.
Many Thanks in advance.
Investment
The company is considering an investment
Diversification
The investment is a diversification from its current activity
The company would need to raise additional debt finance for the investment
Subsidised loan
Because the investment is an area that is of interest to the government, it is willing to offer the company a subsidised loan, which will be less than the market rate
Reference to issue cost
Remember that your cost of capital to discount the cash flows from the investment phase is the ungeeared cost of equityIn other words you need to derive ba which you will need to plug into your capm formula
Dont forget to adjust your base case NPV for the effects of the financing method
Best of luck in your exam
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