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Dear Tutor,
How should we treat the contribution lost due to the project launch.
Per Q29 of BPP Practice and Revision Kit, the lost contribution is included to the base NPV (i.e. the all equity NPV).
Per Q79 of BPP Practice and Revision Kit, the lost exports are considerred as a side effect.
I’m sure there is a reason.
Please clarify how should we deal with this.
Are there are any general rules to apply?
General people like general rules 🙂
Thank you in advance.
I am really sorry, but I do not have the latest edition of the BPP Revision Kit.
If you give me the names of the questions then I should be able to find them and then I will try and help you.
No problem:
Q29 – “Neptune” – from June 2008 – amended;
Q79 marked as “Intergrand (SFM, 12/02, amended);With APV you discount the cash flows as though all equity finance, and separately add on the benefit of the tax shield on the debt.
In both questions, the tax shield has been dealt with in the same way.
The reason that the lost exports are dealt with separately in Integrand is nothing in itself to do with APV. It is because they are in $’s whereas the other flows are in Euros and so need converting separately.
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