In Q6(b) of CA Final SFM November 2020 Exam of APV (Adjusted Present Value), ICAI has given 2 solutions. The 2nd Solution (which is the alternate solution) is exactly how we have solved this question in class.
However, can you please explain the First Solution done by ICAI (specially the “Present Value of Impact of Financing by Debt” Table) ? And why has ICAI used Pre-Tax Kd (Instead of Post Tax Kd) for discounting Cash Flows in the 2nd Table (Present Value of Impact of Financing by Debt) ? Is it because the impact of Tax is considered through “Tax Saving on Interest” (3rd line Item) and hence we should NOT consider the impact of tax again through the use of Post-Tax Kd ?
Also, which method is technically and conceptually more correct for computing APV ? First Solution or Second Solution ?
The Management of a multinational company TL Ltd. is engaged in construction of Infrastructure Project. A proposal to construct a Toll Road in Nepal is under consideration of the Management.
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