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Kaplan kit question 40 (Kenand)

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Kaplan kit question 40 (Kenand)

  • This topic has 1 reply, 2 voices, and was last updated 7 years ago by John Moffat.
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  • March 22, 2018 at 8:10 am #443391
    Saimon
    Participant
    • Topics: 123
    • Replies: 55
    • ☆☆

    Question a (i)
    MV of XY Co

    Sir,

    I have calculated the mv by discounting
    cash flow using 3 year cost of debt which is 5.20%
    According to my method of calculation MV is $96.75 per $100 bond

    But

    In the kaplan kit answer
    They have calculated 3 different rate of cost of debt for 3 year and discounted the cashflow of each year by that particular year cost of debt
    According to kaplan method of calculation MV is $96.86 per $100 bond

    Here, my concern is whether my way of calculation is correct or not. That’s why i have asked u this question previously so that i see how you calculate the mv

    March 22, 2018 at 3:46 pm #443466
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54720
    • ☆☆☆☆☆

    As I told you before, I do not have the Kaplan Kit.

    However, from what you have written Kaplans answer is correct, Each year should be discounted by the relevant required return relating to that year. (Incidentally, we are never discounting at the cost of debt – the cost of debt will be lower than the investors required return because of tax relief. It is the investors required rate of return that determines the market value.

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