''The directors of Loki have been in discussion with 4Ts, a listed venture capital company.
As well as contributing equity, 4Ts would seek to spread the risk of their investment by also
investing in the form of 4–year 5% secured redeemable bonds and also convertible
preference shares. The risk adjusted return on similar bonds has been estimated at 6%.
Corporation tax is currently 30%.
MV = (Interest of 5 × 4yr annuity factor) + (redemption of 100 × 4yr DF)
MV = ($5 × 3.465) + ($100 × 0.792) = $96.53 ''
Sir kindly confirm that We're not taking the after tax interest in our computation because We assume the adjusted return to be before tax?
Ask the Tutor ACCA FM
Loki co Kaplan kit
5y ago
5y ago#1It is investors who determine the market value. Investors are not affected by company tax and the market value is always the PV of the future receipts discounted at the investors required rate of return, which is before company tax.
5y ago#2If it says TAX only and not ''Corporation Tax'' then also we do the same calculation?
5y ago#3Yes, because it is only corporation tax that is in the syllabus. We always ignore other taxes in Paper FM.
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