Robson

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May 13, 2022 at 6:32 am #655507
Sharmaarke
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Hi, sir in the past question March/Jun-2021 Question 2 Robson.
When calculating the tax shield on the subsidized loan the examiner used df 9%, I wonder why what is reasoning behind it? shouldn’t we calculate Kd and use it?
May 13, 2022 at 8:34 am #655527
John Moffat
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The tax shield is discounted either at the normal cost of borrowing (which is the 9% on the bank loan) or at the risk free rate. The examiner always accepts either (as is stated in the examiners answer). I explain the reason for this in my free lectures on APV.
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