Adjusted present value

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    • #17094
      Markus David
      Participant

      Why was 4% used as discount rate to compute the pv of financing?

    • #19782
      Anonymous
      Inactive

      In solving APV questions (Pv of financing side effects), the appropriate rate to use is either the cost of debt or the risk free rate. In relation to this question the cost of debt is actually risk free therefore 4% is the appropriate rate to be used.
      I stand to be corrected.

    • #20013
      joshua joshua
      Keymaster

      Answer: in APV you use the risk free rate to determine the cost of equity of a geared company. So in the question the risk free rate is 4%.

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