This is my full debrief of Tanza Co the past exam from March/June 2022. Hopefully this is helpful to all you FM students out there. Please let me know. We all love feedback !!
Good evening mam. Mam I have question based on section A cost of capital chapter. Mam if in the question, we are given 5% secured redeemable bonds with the required return of 6% and corporation tax being 30%. And we are told to calculate market value of redeemable bonds only. Mam my question is that the 5% interest rate that I am considering is after deducting tax by (1-30%). But however in the answer they are calculating without considering the tax of (1-30%). As a result of which my answer is wrong. Can u plz explain me mam when exactly I should take into account the tax rate or ignore it. I have been making this mistake in lot of Sec A & Sec B questions specifically. Can u plz please give trick to help me understand this concept. Thank you.
You are confusing the tax issue. You only take off corporation tax if you are calculating the cost of debt. Here you are calculating the market value of the debt to the investor. The investor doesn't pay corporation tax. So no tax deduction and use the pre tax rate.
I am using the IRR function that automatically calculates the IRR .. you need to learn how to use it . This is not linear interpolation. You layout the cashflows as a NPV and then highlight them and make a guess.. I have just used 10%. You can use any %. The key is getting the cashflows laid out correctly
@@jotuffillacca In kd we mostly use the percentage of loan notes in which it is issued which is here 6% and we use after tax cost of interest which is 5.1 (5%) we discount at around these percentages. But instead you are using 10%..
@@preetichugh9393 You can use any % in the IRR function as its a guess. When doing the Interpolation yes its best to get 2 % around the interest rate and near to it but not essential.
