Neptune

This topic has 3 replies, 2 voices, and was last updated 11 years ago by John Moffat.

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May 31, 2015 at 9:15 pm #251137
Keshini
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Hi John

In question Neptune they use ungeared cost of equity to discount cash flows in NPV. Why is it not the WACC?

Thanks
Keshini
June 1, 2015 at 8:12 am #251195
John Moffat
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Because the question asks for the APV.

For APV you calculate the NPV as though it were all equity financed (i.e. using the ungeared cost of equity) and then add the tax benefit on the debt interest.
June 1, 2015 at 9:22 am #251253
Keshini
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Many thanks for your reply
June 1, 2015 at 12:11 pm #251295
John Moffat
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You are welcome 🙂
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