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Hello John
In this question lost contribution 150m for in the first two years is included in base case. But I have seen that it is included in side effect calculation. Where really should it be included in APV calculation?
The base case is calculate the NPV if it were equity financed. So we include all relevant cash flows as we would with any NPV question (including lost contribution). You should not have seen it included ever in the ‘side’ effect.
The adjustment to NPV in order to get the APV only ever relate to the funding – the tax shield on the interest, the issue costs, and any subsidy on the loan.
I was comparing to December 2011 question 1, where there are included opportunity cost and additional contribution in APV calculation.
That question was a little unusual, but the question specifically told you to do that.
Right, then the normal location of other relevant cash flows is in base case calculation. Thanks again John 🙂
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