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Sir I did not really understand this assumption.”An APV calculation would normally use debt capacity for the tax shield benefit calculation rather than the amount of debt finance used.”
Why do we use debt capacity when this not actually the amount of debt I will be borrowing.
Because it is assumed that the company will take advantage of the extra debt capacity, even though not immediately.
Oh okay. So for eg if in a qs both the debt capacity and the debt amount needed are given I should use debt capacity for the calculation. However there isn’t any such question.
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