P4 revision question — OpenTuition Forums

3310zcx11y ago

Hi John 1 I have a question on paper DEC 11, Q1. when calculation the present value of tax shield and present value of cheap loan, the answer use the 270000 as the total amount. I know it is correct. I want to can I use the figure 4909 (270000/55) at the total amount to calculate both of them. both are accepted or not ? 2. the examiner calculate the additional tax separately and use the US discount rate. It is right. I want to know, can I integrate the additional tax into the basic NPV, which means in the basic NPV, I added the additional tax after all cash flow translated into the US, sum it and using the discount rate 9.6% to get the present value? do not use the US discount rate to discounting the additional tax thanks

John MoffatTutor11y ago#1

1. You would get some marks, but not all (because the exchange rate is expected to change each year). 2. The additional tax should be discounted at the US discount rate.

3310zcx11y ago#2

So. In the foreign investment APV. I should calculate the additional tax separately. Do not allowed to integrate into the basic NPV calculations right?

John MoffatTutor11y ago#3

Yes - keep it separate :-)

3310zcx11y ago#4

Clearly. Thanks.

John MoffatTutor11y ago#5

You are welcome :-)