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Hello sir its bpp kit question current version q no 79 part a
Sir i don’t get how the model answer calculates the tax shields on bonds on bank loans and then inqorking no 4 how he calculates the value of D’ Could you help explain sir. Thank youHave you watched the lectures on APV? The tax benefit is the PV of the tax saving on the interest payments. The answer explains why for the loan this comes to the same as the loan itself times the tax saving.
With regard to D, the total debt is the bank loans of 30 (from the SOFP) plus the bonds which have a nominal value of 18 (from the SOFP) but a market value of 1,230 per 1,000 (from note 5 of the question).
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