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Hi there, I am having a little trouble understanding why on LOL Cards on part (b) where you have to assess LOL’s financial performance using EVA, in that when you are working out WACC for 20X9, why you don’t in the (Kd x %d) part of the formula you don’t do 1-25% (which is the corporation tax)
So in the solution for 20X9 its:
(Ke x %e) + (Kd x %d) = (12.7% x 50%) + (4.2% x 50%), whereas why it is not
= (12.7% x 50%) + (4.2% x 50% x 1-25%)
The question specifies that 4.2% is the post tax cost, so you don’t have to reduce it again for tax.
For future reference, there is no point in specifying a page in a study text. We are not affiliated to BPP or Kaplan, so might not have access to these books – certainly not the latest editions. Specifying the ACCA exam is obviously useful.
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