- August 20, 2022 at 9:30 am #663723
I’m a bit confusing when to use cost of equity, or when I need to do one more step to calculate the WACC for discount factor.
Thanks.August 20, 2022 at 10:51 am #663737
It depends on whether it is investment appraisal (and whether we want the APV as opposed to the NPV) or whether it is valuing a business.
I do explain all the situations in my free lectures.August 20, 2022 at 11:39 am #663741
Yes, I did went through all the lectures and they are very helpful. I had no issue when I was trying out the examples, but when I practice the exam questions then I often got confused.
Is there a rules or phrase that I can memorize so I know which one should I use?August 20, 2022 at 3:10 pm #663767
I cannot give you a rule because it depends on the type of question and what is specifically required. If you tell me a specific question that is giving you a problem then I will be better able to advise you 🙂August 21, 2022 at 4:02 am #663811
I was working on the AFM Past And Practice Exams on ACCA platform – Robson Co AFM March/June 2021 (20/21 syllabus). They financed the investment with 2 other loans, but it was only using the cost of the equity to discount the cashflow. Why it’s not using the WACC as it was funded by debt too?
2 other loans in the question:
Subsidised loan, 3·5% annual interest rate
Bank loan, 9% annual interest rateAugust 21, 2022 at 10:09 am #663839
The question asks you to calculate the adjusted present value, and for the APV we always discount at the cost of equity if all equity financed, and then adjust for the tax shield on debt.
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