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q41 burcolene why default premium taken to calculate cost of debt? and why global premium taken for cost of equity ?
For equity it is the equity risk premium that is relevant (the world global is of no particular relevance).
For debt the reason for the cost being higher than risk free is because of the risk of default.
Oh so everytime if default risk premium is given we must take it cost of debt calculation right?
what it mean by free cash flow model and free cash flow to equity? i noticed in one problem interest has been deducted from cash flow .We usually consider interest as irrelevant item right?but i guess its cash to equity ,we are paying them after interest with reference to Q40 kodaik co !
in q41 again, calculation of number of options( 1-0.5)3 1-.2)
what is 0.5,3,0.2 and why we are multiplying ?and explanation bit of part b they explaining about validity of free cash flow model?gosh I m unable to fathom 🙁 questions becoming harder and harder .
Free cash flow and free cash flow to equity are both explained in full in the free lecture notes. (There is no point in attempting questions until you have finished studying)
0.05 is the 5% attrition rate given in the question.
The power 3 is because it is 3 years
0.2 is because 20% will not have reached the standard of performance requiredHi Sir,
is there a lecture on share options scheme? I am not able to understand calculations in Burcolene. Please link the video.Thanks 🙂
Although there are lectures on option pricing, there are no lectures on what is asked in Burcolene (and there will not be) because:
This was asked by the previous examiner and is much less likely to be asked by the current examiner.
It is really a Paper P2 point, coupled with following the instructions in the question.
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