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Hello,
Regarding the tax shield on the bank loan:
since we have already found the PV of the repayment for each year, why do we discount again at 9% the tax relief?
The tax relief is already calculated on a PV amount no?
ThanksThe PV of the repayment is the amount initially borrowed, as is always the case. We used that to calculate the amount of the repayment each year.
Then we know what the interest is each year and the tax shied is on the interest amounts.
Not sure I undertstand your reply sir…
But anyway I figured that the interest calculated is not on the PV of repayment but on the balance of the loan which is not PV’d.
Therefore there is no double discounting
Thanks
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