hehanz

顶上来~~

hehanz

If you take a look at p197 in note 2, you would find it says on the right top that interest expense is calculated by assuming that BW finances 50% of the project's market value with debt at a pre-tax cost of debt of 6%. And then it gives an example.

 

So with this question, I agree with the rest of the answer, except this part: interest expense = Debt * r_d = weight of debt financing initial outlay * initial outlay * r_d. I think it should be the market value of the project, instead of the initial outlay.

 

And the way to calculate the market value is

 

First you calculate the after-tax cash flow for each year: year1 20.7, year2 22.54, year3 24.5

 

Then discount: 20.7/1.15 + 22.54/1.15^2 + 24.5/1.15^3 = 51.15

forwhat

the answer should be correct,

for question 14 specifically, the year one EBIT=24-0.5-19=4.5m, since the project was financed partially by debt, we need to crunch interest before calculating tax effect. Interest = Debt * r_d = weight of debt financing initial outlay * initial outlay * r_d = 0.4 * 38 * 0.12

therefore the accounting income after tax equals to (4.5 - 0.4*38*0.12)*(1 - 0.4)=1.6056

 

sorry I didn't get the market value of the project from this question, how to get it? and how do you get the answer 8.706M?