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For unbundling
The cash flows will grow by 8 %
So the formula
Fcf **(1+0.08)/ cost of capital – g …..isn’t it ??But the answer is only using cost of capital as denominator …why are not we substracting g from cost of capital in denominator ??
And I have another confusion that the answer is not discounted
Exam answer 435 * 1.08/0.1o = 4698
I did this 435 * 1.08/0.10-0.08 * 0.909
Would you please help me for ‘g’ and why not diiscounting ?
ThanksAlso for apv calculation on general the cost of debt used as a discount factor is a pre tax cost of debt always ??? M I right ? Or risk free rate alternate choice
The question says that cash flows will increase by 8% in the first year only and then stay fixed.
Multiplying by 1/r always gives the PV of a perpetuity when the first flow is in 1 years time. Here, the first flow is in 1 years time – there is no need to discount again.
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