Nente Cojune 2012 & Hav Co June 2013

In Nente the free cash flows have been discount at the WACC of 11%. The question says that the overall cost of capital is 11%. (What symbol the examiner chooses to use is completely irrelevant). For Hav Co, the answer is not using any standard formula. It is following the instructions that are given in the question:T "the premium payable on acquisition should be based on the present value to infinity of the after tax excess earnings the company has generated in the past three years, over the average return on capital employed of the biotechnological industry."

so sir cost of capital is k or wacc?, I was confused that cost of capital is only denoted by k and in Hav Co can u pls explain that how do we know the CE of biotechnology industry is 20% of CE of Strand. The line just states that the biotechnology's pre tax CE is estimated to be 20% per annum so why are we calculating it as 20% of CE?? thanks alot in advance.

The symbols are irrelevant. k is sometimes used for cost of capital (ke is cost of equity and kd is the return on debt). But the question says that the pre-tax return on capital employed is 20%. (It does not say the the pre-tax capital employed is 20% - that would be nonsense.)