June 13 Exam q1 and 2 — OpenTuition Forums

Rriotheone11y ago

Hi fellow students I am going through past exams papers and I can't wrap my head around some answers. in Q1, when being offered a debt to finance the Bahari project, doesn't it mean we have to recalculate WACC for the whole company since we now have a debt? in Q2, when Strand shareholders are being offered bonds, shouldn't we also calculate interest and value of the option as a premium paid? Using B&S or something? Cheers in advance!

Hhaseenababu11y ago#1

Hi, If you read, there is a sentence saying Mlima is not going to take up any more debt. The paragraph just after Mlima's p&l. So it is all equity discount rate. It is to be assumed so. Give me some time to do Q2.

Rriotheone11y ago#2

Actually after readying more on the topic, I understand that this is APV as opposite to NPV. Still no clue about the 2nd part though :)

Former user11y ago#3

Hi I need some help on J13 q1 from the answer of the examiner the benefit arising from the subsidy is calculated as 4% x 150m x (1-0.25) = 4.5m Why has (1-.025) being used ? I can't understand Thanks for helping

Jjudezz9111y ago#4

hi, the subsidy is interest saved - minus tax benefit on it. we lose the tax benefit on interest not paid right.. tax is 25% so what we save is 75% of the interest

Former user11y ago#5

thanks for the help Jude :)

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