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2005 December exam —Sleepon hotel
i dun understand why the tax paid is incurred in first year. i thought the tax will only be paid on next year. (eg, u earned profit in year 1, the tax is paid on year 2)
and the tax saving on capital allowances, is it must be incurred at the same time with tax paid?
Take a look here, I asked similar question.
https://opentuition.com/topic/capital-allowances-sleepon-question/#post-194877
karmuks, thank very much.
Now i know when i am writting the answer, make assumption is the best wayHi Sir,
I am bit confused on the working capital part. It only mentioned working capital of $50m is required from the end of the year one.and question also mentioned company expects all cost and receipts to rise by 3% from current value.
but why working capital in year one also need $50 * 1.03 = $51.5.? and some more every year also need to add on additional 3%?
working capital is not cost nor receipts, why need to rise 3% every year?
As sales increase you would expect receivables, inventories, and payables to increase and therefore working capital to increase.
It is a standard assumption in both F9 and P4.Hi John,
I’m confused regarding the cost of capital here. What I did was,
First I calculated Thrillall’s asset beta= 1544/1544+(428*0.7)*1.45=1.21Then I calculated Sleepon asset beta =
Or, 1.21=61.4/61.4+(38.6*0.7)*equity beta
Sleepon equity beta=1.74After that, I calculated sleepon asset beta =61.4/61.4+(38.6*0.7)*1.74=1.2
Then I calculated ke=3.5%*(10-3.5)*1.21=11.36%
1.21 is sleepon asset beta.Can I use this as a discount rate or do I need to calculate sleepon wacc?
@parisnaaa said:
Hi John,
I’m confused regarding the cost of capital here. What I did was,
First I calculated Thrillall’s asset beta= 1544/1544+(428*0.7)*1.45=1.21Then I calculated Sleepon asset beta =
Or, 1.21=61.4/61.4+(38.6*0.7)*equity beta
Sleepon equity beta=1.74After that, I calculated sleepon asset beta =61.4/61.4+(38.6*0.7)*1.74=1.2
Then I calculated ke=3.5%*(10-3.5)*1.21=11.36%
1.21 is sleepon asset beta.Can I use this as a discount rate or do I need to calculate sleepon wacc?
Please don’t post the same question twice – it won’t get you an answer any faster (we don’t sit at the computer 24 hours a day!!).
Have you not looked at the examiners answer, (because it is correct!)?
You need to calculate the equity beta, then use this to get the cost of equity, and then calculate the WACC.
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