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I have a few questions
1. Why was the Kd used in the M&M formula pre-tax?
2. Can you explain what the examiner did after arriving at 12.78% to get the 9%? Where’s the 1.42 coming from?
3.The examiner couldn’t apply (1-t) on the subsidy benefits because of the difference in discount factors yeah? i.e since there’s no delay for the subsidy payment but there is a delay on the interest saved payments, this would require two different discount factors, correct?1. Kd in the formula is the return to investors which is always pre tax (as I explain in my lectures on this).
2. The examiner has simply rearranged the equation on the previous line.
Ke + (1-0.3)Ke x (240.8/400) = 1.423. What you have written is correct.
Hi John , could you please breakdown each calculation leading to 1.42. Ke is unknown. i dont know what is being multiplied with it to get to 1.24 . however i am getting 0.42 by multiplying 240.8/400 with 0.7
2.
I seem to have worked this out but forgot it again while revising, looked at my notes couldnt find it
10.5 remains as it is
2.28 i got by multiplying 240.8/400 with post tax KD of 3.78%
I am getting 0.42 by multiplying 240.8/400.
How do i make 0.42 to 1.42. Missing the magic additional 1
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