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Tonpantau Dec 2022

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Tonpantau Dec 2022

  • This topic has 1 reply, 2 voices, and was last updated 3 weeks ago by John Moffat.
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  • May 3, 2023 at 11:06 pm #683899
    Spiro
    Participant
    • Topics: 10
    • Replies: 37
    • ☆

    In the proposed solution, the examiner calculates Cost of Debt using IRR approach. Tax relief (1-T) is not taken into account. Even, explicitly it is written Cost of debt is 6.48% (which should be the Return to Investors).
    However, after that in WACC calculation tax relief is considered.

    In your lectures, you explained very thoroughly this topic. I assume that we should take into account tax relief (1-T), at the time when we calculate IRR (Cost of debt) for redeemable debt?

    May 4, 2023 at 8:17 am #683914
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 52437
    • ☆☆☆☆☆

    Strictly, what the examiner has done is wrong in that because it is redeemable debt he should have calculated the IRR of the after-tax flows. The examiner accepts this and made it clear that you would have got full marks for calculating the IRR properly.

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