AFM Topic Explainer: Adjusted Present Value

00:31:36
https://www.youtube.com/watch?v=U7Wk4DeVilQ

Ringkasan

TLDRAquest vídeo és una introducció al concepte de "Adjusted Present Value" (APV), que s'inclou en la secció B del programa d'estudis AFM, sota l'apartat d'avaluació d'inversions avançades. APV és una tècnica que millora el valor present net (NPV) al considerar tant els fluxos de caixa d'inversió i operatius com els financers. La tècnica s'aplica quan hi ha canvis significatius en l'estructura financera d'una organització, incloent-hi efectes fiscals i costos de transacció. És essencial que els estudiants entenguin el concepte de descompte del flux de caixa, el càlcul del cost mitjà ponderat del capital, i les proposicions Miller-Modigliani respecte al cost sense apalancament de l'equitat. Durant l'examen AFM, és crucial interpretar correctament l'APV per assessorar sobre viabilitat financera en projectes d'inversió. Els efectes laterals financers, com els escuts fiscals, poden augmentar el valor del projecte si es finança adequadament.

Takeaways

  • 📘 L'APV és clau en l'examen AFM per complexitats financeres.
  • 📈 Separa fluxos operatius d'inversió dels financers, millorant l'NPV.
  • ⚖️ Inclou efectes fiscals i costos de transacció per avaluar el projecte.
  • 🗝️ Coneixements en fluxos de caixa descontats i teoria de capital són essencials.
  • 🧩 Understanding millora l'avaluació d'inversions més enllà de l'NPV.
  • 📊 La pràctica rigorosa amb qüestions d'examen passades és indispensable.
  • 💡 L'APV pot canviar la viabilitat d'un projecte inicialment desfavorable.
  • 🔍 Identificar efectes laterals financers beneficia el procés d'avalució.
  • 🌐 Recursos com l'Acca study Hub són fonamentals per a l'aprenentatge.
  • 🧠 Comprendre bé el concepte pot evitar errors comuns durant l'examen.

Garis waktu

  • 00:00:00 - 00:05:00

    Aquesta introducció al vídeo explica que es tracta d'un tutorial sobre l'AFM (Advanced Financial Management) centrat en el concepte de valor present ajustat (APV). L'orador, Milind, destaca la importància d'entendre no només els càlculs sinó també l'aplicació del mètode en la presa de decisions d'inversió. S'esmenta que APV forma part de la secció B del programa AFM, enfocada a l'avaluació avançada d'inversions, la qual cosa implica canvis significatius en l'estructura financera, incloent-hi els impactes fiscals i de costos de transacció.

  • 00:05:00 - 00:10:00

    Es presenta el mètode APV com una millora sobre el mètode NPV tradicional perquè aquest últim ignora els fluxos de caixa de finançament. APV permet separar els fluxos de caixa d'inversió i operació dels de finançament i considera tots dos en l'avaluació del projecte. Això ajuda a determinar el valor afegit de projectes finançats amb deute, mostrant la importància de considerar l'efecte fiscal dels escuts fiscals i altres costos associats al finançament amb deute.

  • 00:10:00 - 00:15:00

    Per calcular APV, primer es determina el valor del projecte com si es financés completament amb capital propi, i després es calcula el valor present dels efectes laterals del finançament, com els escuts fiscals del deute. Aquest càlcul implica determinar un 'cas base' d'NPV, on el projecte es considera finançat per capital propi. Es posa èmfasi en l'ús del cost d'equitat sense palanquejament per descomptar els fluxos d'inversió i operació.

  • 00:15:00 - 00:20:00

    Es diferencia entre els mètodes de NPV i APV en termes de tipus de descompte utilitzat: el cost d'equitat sense palanquejament per al NPV base i el cost del deute abans d'impostos o un tipus lliure de risc per als efectes laterals de finançament. Es destaca la importància d'assenyalar les suposicions utilitzades i es recomana una pràctica rigorosa de supòsits per aplicar correctament el mètode APV en l'examen d'AFM.

  • 00:20:00 - 00:25:00

    En l'examen d'AFM, el mètode APV podria no ser explícitament requerit, però es poden donar indicis en els enunciats que suggereixin la necessitat d'utilitzar-lo, com canvis substancials en l'estructura de capital. L'examinador podria esperar que l'estudiant justifiqui la selecció del mètode APV basant-se en el context donat. També s'assenyala que APV pot reavaluar un projecte inicialment rebutjat per NPV si inclou els efectes de finançament.

  • 00:25:00 - 00:31:36

    Finalment, es remarca la importància d'entendre el concepte de APV per evitar errors comuns com calcular el cost d'equitat palanquejat en lloc del no palanquejat. S'encoratja als estudiants a usar recursos com l'ACC study Hub per adquirir una comprensió sòlida i practicar amb preguntes d'exàmens anteriors per estar ben preparats per a l'AFM. L'orador desitja bona sort als estudiants en el seu aprenentatge i preparació.

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Mind Map

Pertanyaan yang Sering Diajukan

  • Què és el valor present ajustat (APV)?

    El valor present ajustat (APV) és una tècnica que millora el valor present net (NPV) separant els fluxos de caixa d'inversió i operatius dels financers per avaluar l'efecte combinat en el valor del projecte.

  • Com es relaciona l'APV amb l'NPV?

    L'APV és una millora del NPV perquè té en compte els efectes financers, com els escuts fiscals, que l'NPV ignora.

  • Per què és important l'APV en l'examen AFM?

    L'APV sovint es prova en l'examen AFM i és essencial per avaluar projectes amb estructures de finançament complexes, per tant, una bona comprensió ajuda als estudiants a aprovar l'examen.

  • Què és el "base case NPV"?

    El "base case NPV" és el valor present net calculat assumint que el projecte es finança totalment amb capital propi, sense deute.

  • Quins són els efectes laterals financers en APV?

    Aquests inclouen escuts fiscals sobre els interessos del deute, subsidis governamentals si escau, i costos d'emissió de nous capitals.

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Gulir Otomatis:
  • 00:00:00
    [Music]
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    hello and welcome to this
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    video I'm milind and I'm an expert tutor
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    for the AFM
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    examination in this topic explainer
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    video for
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    AFM I'm going to cover some important
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    aspects about the concept of ADD
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    assisted present
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    value and provide you with tips on how
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    to answer the
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    tasks that uh require you to estimate
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    the adjusted present value interpret the
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    result thereof and then advise the
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    organization uh based on the details
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    given to you in this
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    scenario please remember this is not a
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    detailed teaching radio but only giving
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    you some of the
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    tips so before we actually start talking
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    about the adjusted present value as a
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    concept let us look at how uh it's it's
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    included in the AFM
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    syllabus well it it is included in the
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    section B of of the AFM syllabus that is
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    devoted for advanced investment
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    appraisal as a decisionmaking
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    area please be careful in understanding
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    the learning objective over
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    here it says you're just not supposed to
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    make calculations but apply the uh
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    technique to uh appraisal of investment
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    decisions and and it
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    entails significant alterations as this
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    syllabus words uh in the financial
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    structure of the
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    organization including FAL uh fiscal
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    sorry and uh transaction cost
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    implications
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    thereof you must
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    learn to
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    revise the concepts that are directly
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    involved in estimation of the adjusted
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    present
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    value namely the discounted cash flow
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    technique
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    the weighted average cost of capital
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    calculations the concepts of asset beta
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    and Equity beta process of UNG gearing
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    beta the uh mm proposition Modi ganian
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    maer propositions for ungeared cost of
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    equity
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    calculations please remember this area
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    is quite often tested in the AFM
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    examination and from that angle it's
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    really very very
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    important of course uh there's uh no way
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    in which I'm trying to spot questions
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    for
  • 00:03:09
    you but but remember uh very good
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    learning of this could go a long way in
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    you you passing the AFM
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    examination you'll definitely need
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    rigorous practice on this
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    topic and here carried forward Knowledge
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    from your your financial management
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    paper will will definitely help you
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    concept of beta the process of UNG
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    gearing the beta the capital asset
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    pricing
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    model revise them in in depth no
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    doubt of course most of the formula will
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    be available to you in the formula sheet
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    even at the AFM examination in the CB
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    environment and for for this topic which
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    is is on the new technique of adjusted
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    present value for you you'll find the
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    learning material in the Acca study
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    Hub subsection one of the chapter number
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    six please don't uh forget learning from
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    that a very very useful uh resource
  • 00:04:23
    directly coming to you from Acca you can
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    access the Acca study Hub of course from
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    the my ACC
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    account so the way the adjusted present
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    value technique uh
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    Works uh is definitely a part of your
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    new learning bringing forward of course
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    your knowledge from the financial
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    management
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    paper but what this technique
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    entails remember the uh APV technique
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    has emerged because npv has its
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    limitations The Net Present Value
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    technique definitely uh you know
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    ignores financing cash flows if you
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    remember those calculations of Net
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    Present Value we take only investing
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    cash flows related to initial investment
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    working capital uh the the net
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    realizable value at the end of project
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    period uh realization of working Capital
  • 00:05:29
    invested and then the operating flows
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    like Revenue cost taxation Etc but it
  • 00:05:37
    does ignore financing cash flows when
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    when you evaluate the investment
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    decision but APV technique
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    actually is uh uh an improvement over
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    npv in this
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    sense it it separates the investing and
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    operating cash flows from financing cash
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    flows and tries to assess uh the the
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    effect of both the cash flows on the
  • 00:06:09
    value uh generated by the
  • 00:06:13
    project so a project May provide
  • 00:06:17
    additional
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    value if it is funded uh by by making a
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    sort of a choice which is which is very
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    very relevant and uh you know uh
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    suitable for the given
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    scenario generally what we have learned
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    at
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    the financial management level uh is
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    that if npv is negative we tend to you
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    know uh reject a
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    project but a project can generate
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    additional value if it is for example
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    funded through
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    debt in short the the technique helps us
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    determine the value of a geared project
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    a project that is funded from debt
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    that's a geared project and this
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    actually
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    again is derived logically from the
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    modiani Miller preposition that value of
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    a geared firm is equal to value of an
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    ungeared firm Plus the present value of
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    tax
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    Shields somewhere very close to this
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    assertion uh you know uh APV technique
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    helps us in appraising the
  • 00:07:42
    project so let's let's quickly look at
  • 00:07:46
    what calculations are involved and what
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    are you supposed to
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    learn while by learning the concept of
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    AP it it involves calculating the value
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    first of all as if the new project is
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    going to be funded entirely out of
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    equity no debt only out of
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    equity and then calculate the present
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    value of the financing side effects that
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    flow to the entity due to use of
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    debt use of debt specifically brings to
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    us the tax
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    Shields now the value which we
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    determine
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    by uh assuming that the project will be
  • 00:08:40
    entirely funded from equity and then
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    calculate the Net Present Value that npv
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    is termed as base case npv as if the
  • 00:08:52
    project is funded by
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    equity and the side
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    effects will generally include as I said
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    one of them is tax shield on the
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    interest on
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    De when you issue new capital in terms
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    of debt to fund a new project there are
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    issue
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    costs of of raising the funds so that's
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    another financing type cash
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    flow many times if the project new
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    project that is been contemplated is of
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    national
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    importance to a country in which an enti
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    operates the entity may get uh you know
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    government
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    subsidies so getting government
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    subsidies or getting softer loans may
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    act as additional benefit because you
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    make uh you you make a choice of uh New
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    Capital to be raised from those
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    resources so two things the calculations
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    will require one calculation of a base
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    case npv second the present value of uh
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    the financing side
  • 00:10:07
    effects so the base case npv as I said
  • 00:10:12
    is is uh
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    calculated with respect to consideration
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    of initial investment working capital
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    investment realizable value of the
  • 00:10:24
    project and the operating cash flows as
  • 00:10:27
    I said earlier like revenues costs and
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    taxes when you determine the cash
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    flows use your carried forward Knowledge
  • 00:10:37
    from the FM
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    paper but discount them now here is a
  • 00:10:44
    catch you normally discount for
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    calculating npv you normally discount
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    taking the weighted average cost of
  • 00:10:52
    capital or a Project Specific cost of
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    capital here you discount it using
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    ungeared cost cost of equity and why we
  • 00:11:01
    take ungeared cost because the
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    assumption is we are going to fund the
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    entire project out of equity only no
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    debt so no gearing and therefore
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    ungeared cost of
  • 00:11:13
    equity now ungeared cost of equity you
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    can calculate in two ways you will need
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    to learn the the ways in which to
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    calculate it and uh the the study Hub
  • 00:11:26
    resource very very clearly explains it
  • 00:11:29
    to the it to you so you can either use
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    the process of UNG gearing the
  • 00:11:36
    beta taking of course the proxy company
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    uh information and then using that
  • 00:11:42
    ungeared beta in capital asset pricing
  • 00:11:45
    model formula to calculate ungeared cost
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    of
  • 00:11:50
    equity if relevant information is not
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    available to you in the
  • 00:11:56
    exhibits you can make use of the mod
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    proposition for which the formula is
  • 00:12:04
    available to you in the uh formula
  • 00:12:08
    sheet and again it it is based on the
  • 00:12:11
    basic idea of mm preposition that uh
  • 00:12:15
    value of geared form equals value of
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    ungeared form plus the tax
  • 00:12:22
    effects so using them you make the
  • 00:12:25
    estimate of ungeared cost of equity you
  • 00:12:28
    use that as a discount factor to find
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    out the present value of investing and
  • 00:12:35
    operating cash flows finally to get your
  • 00:12:38
    base case net present
  • 00:12:41
    value so this is a logic that you need
  • 00:12:43
    to learn please remember many students I
  • 00:12:47
    have found uh you know learn
  • 00:12:50
    mechanically and that's not going to
  • 00:12:52
    help you because the way in which the
  • 00:12:55
    data may be provided in exhibits is not
  • 00:12:58
    a standard
  • 00:12:59
    way of
  • 00:13:01
    information it's is for you to you know
  • 00:13:05
    read the exhibits very carefully and get
  • 00:13:08
    the information interpreted the way it
  • 00:13:10
    is required to so that's very very uh
  • 00:13:15
    important for you and then when
  • 00:13:18
    considering the present value of
  • 00:13:19
    financing side
  • 00:13:21
    effects what you will need to do is to
  • 00:13:25
    consider cash flows that are related to
  • 00:13:29
    for example uh the tax shield on using
  • 00:13:32
    debt benefit of subsidized loans and the
  • 00:13:35
    issue
  • 00:13:37
    costs mainly these three
  • 00:13:40
    U you know cash flows uh occur so far as
  • 00:13:44
    financing side effects is concerned
  • 00:13:46
    sometimes you also could uh get a cash
  • 00:13:49
    flow that is related to uh increase in
  • 00:13:53
    the debt raising capacity of the firm
  • 00:13:56
    I'll talk about that a bit later
  • 00:14:00
    take these financing cash flows and
  • 00:14:03
    discount them now see that's the
  • 00:14:06
    difference between the basic npv and uh
  • 00:14:10
    the the APV
  • 00:14:11
    method in npv we use only one discount
  • 00:14:15
    rate in APV we use ungeared cost of
  • 00:14:20
    equity as a discount rate for base case
  • 00:14:23
    npv and the pre-tax cost of debt or a
  • 00:14:28
    risk free rate for uh calculating the
  • 00:14:33
    present value of financing side
  • 00:14:36
    effects now experts do defer whether
  • 00:14:39
    they should go ahead and use pre- tax
  • 00:14:41
    cost of date or risk free
  • 00:14:45
    rate the AFM examiner has made it very
  • 00:14:49
    clear you could use any of the two but
  • 00:14:52
    State your assumption very
  • 00:14:55
    clearly so uh these two calculations s
  • 00:15:00
    of of of Paramount importance for you to
  • 00:15:04
    learn very carefully of course just
  • 00:15:08
    learning is not going to be sufficient
  • 00:15:10
    for you you need to practice a lot of
  • 00:15:12
    sums from the past exam
  • 00:15:17
    questions now let's see how the process
  • 00:15:20
    of un gearing it's it's I'm not going to
  • 00:15:22
    of course teach you this but this is
  • 00:15:24
    just uh you know uh revising your your
  • 00:15:28
    Knowledge from uh the financial
  • 00:15:31
    management paper the uh estimation of
  • 00:15:35
    asset
  • 00:15:36
    beta it is given by you know multiplying
  • 00:15:40
    your uh Equity beta with the value of
  • 00:15:43
    equity to the total post tax uh you know
  • 00:15:48
    value of equity and
  • 00:15:49
    debt this information is available to
  • 00:15:53
    you from a proxy company Viewpoint you
  • 00:15:56
    have to take that calculate the cost of
  • 00:15:59
    ungeared beta and input that in the uh
  • 00:16:03
    capm formula as
  • 00:16:07
    such
  • 00:16:08
    secondly way of second way of doing this
  • 00:16:12
    calculation is directly using the mm
  • 00:16:16
    proposition and that says cost of a
  • 00:16:18
    geared Equity ke is given by cost of un
  • 00:16:22
    geared Equity plus difference between
  • 00:16:26
    the cost of uh uh
  • 00:16:29
    ungeared equity and cost of debt
  • 00:16:33
    multiplied by the proportion of debt to
  • 00:16:35
    equity post tax of course that's why 1
  • 00:16:38
    minus
  • 00:16:39
    t if you want to make use of this
  • 00:16:42
    formula there's a tip for
  • 00:16:44
    you it's it's many times the students
  • 00:16:47
    ignore this and and ultimately get
  • 00:16:50
    calculations wrongly KD in this formula
  • 00:16:55
    has to be taken as pre-tax rate now why
  • 00:17:01
    the reason this KD here has to be
  • 00:17:04
    pre-tax the reason is you're already
  • 00:17:07
    multiplying this by 1 minus t so if you
  • 00:17:12
    take here the post tax and again
  • 00:17:16
    multiply the bracket with 1 minus t you
  • 00:17:19
    will be double counting
  • 00:17:20
    taxation so this tip please remember
  • 00:17:24
    very very
  • 00:17:25
    carefully okay now while
  • 00:17:30
    understanding the the normal operating
  • 00:17:32
    and investing cash flows is easier for
  • 00:17:35
    many of the students because they have
  • 00:17:38
    done so well in the financial management
  • 00:17:41
    paper uh by plotting cash flows
  • 00:17:44
    successfully it's the side effect
  • 00:17:47
    calculations that are a bit tricky for
  • 00:17:50
    you and that's why I'm I'm going to tell
  • 00:17:52
    you about these uh uh you know
  • 00:17:57
    calculations uh by way of certain tips
  • 00:18:01
    if you put it in this way I I strongly
  • 00:18:04
    recommend you you definitely will be
  • 00:18:07
    able to uh make the calculations
  • 00:18:09
    correctly in the
  • 00:18:11
    examination so let's first handle the
  • 00:18:14
    cash flow that is related to issue
  • 00:18:17
    costs when you are contemplating
  • 00:18:20
    investing into new project with new
  • 00:18:23
    funding
  • 00:18:24
    raised either it could be full debt or
  • 00:18:27
    it could be a combination of De and
  • 00:18:29
    Equity so the funds that will be
  • 00:18:32
    available to you will be definitely net
  • 00:18:36
    of issue
  • 00:18:37
    costs and therefore when you are talking
  • 00:18:40
    about the issue cost related uh cash
  • 00:18:43
    outflow you need to gross it up and
  • 00:18:46
    that's a very very important step that
  • 00:18:49
    generally students miss out on and
  • 00:18:52
    unnecessarily lose
  • 00:18:55
    marks now I've given a small example
  • 00:18:58
    here year that if the funds required to
  • 00:19:00
    be invested are 4 million and the issue
  • 00:19:04
    cost is 4% the cross funds that you will
  • 00:19:08
    have to raise would be you know $
  • 00:19:11
    4.17
  • 00:19:13
    million so that post the issue cost net
  • 00:19:17
    4 million will be
  • 00:19:19
    available because these are and and this
  • 00:19:22
    is second tip very very important don't
  • 00:19:25
    miss out on
  • 00:19:26
    this because is costs are uh spent
  • 00:19:31
    upfront you don't need to calculate the
  • 00:19:34
    present value of issue costs many
  • 00:19:37
    students apply discount Factor even here
  • 00:19:39
    and uh go
  • 00:19:43
    wrong based on the
  • 00:19:45
    jurisdiction these issue costs either
  • 00:19:47
    may be tax allowable or not allowable so
  • 00:19:51
    somewhere in the exhibits look for this
  • 00:19:54
    information that's why I said the
  • 00:19:56
    information may be available to in a
  • 00:19:58
    scattered manner so you have to use all
  • 00:20:01
    the sufficient care to make sure that
  • 00:20:04
    you read it
  • 00:20:05
    properly and that to if there are tax
  • 00:20:07
    allowable whether the tax is payable in
  • 00:20:11
    the same year in which it is incurred or
  • 00:20:13
    it's in areas one year in areas two
  • 00:20:16
    years in areas
  • 00:20:17
    Etc if it is in areas tax amount
  • 00:20:22
    related cash flows you have to calculate
  • 00:20:25
    the present value so these are final
  • 00:20:29
    points which you should keep in mind
  • 00:20:32
    when doing the calculation of financing
  • 00:20:34
    side
  • 00:20:36
    effects I spoke to you about the debt
  • 00:20:39
    capacity spare debt
  • 00:20:42
    capacity if you're uh doing the project
  • 00:20:47
    that's of certain importance for the
  • 00:20:49
    fund
  • 00:20:50
    providers you know or it's likely to
  • 00:20:54
    give very very high level of values
  • 00:20:57
    which will increase your your
  • 00:20:59
    Equity so your gearing will improve and
  • 00:21:02
    that can provide you with some spare
  • 00:21:04
    debt capacity
  • 00:21:06
    newly although that spare date you could
  • 00:21:10
    use in other
  • 00:21:12
    projects please remember that's because
  • 00:21:16
    of uh this project that you are getting
  • 00:21:19
    uh getting that uh extra capacity so you
  • 00:21:22
    should attribute it to the value
  • 00:21:25
    generated by this
  • 00:21:27
    project and the present value of this
  • 00:21:29
    spare capacity should be calculated
  • 00:21:32
    using the uh formula trick that I have
  • 00:21:35
    given it's logical take the increased
  • 00:21:39
    debt capacity value multiply it by the
  • 00:21:43
    interest
  • 00:21:43
    rate the tax rate because you you're
  • 00:21:46
    going to get the tax advantage on that
  • 00:21:49
    and the annuality factor based on which
  • 00:21:51
    the period for which you are raising
  • 00:21:53
    this particular date or the life of the
  • 00:21:56
    project so so second financing side
  • 00:22:00
    effect the third financing side effect
  • 00:22:03
    could be related to subsidized
  • 00:22:07
    loans two possible effects can arise out
  • 00:22:10
    of that one is the tax shield on the
  • 00:22:13
    loan amount
  • 00:22:15
    itself so if you're getting a soft loan
  • 00:22:20
    take that amount of soft loan multiplied
  • 00:22:23
    by the soft loan related interest rate
  • 00:22:27
    tax rate of course and the annuity
  • 00:22:30
    factor and as I said this you could
  • 00:22:33
    discount either by taking the risk free
  • 00:22:36
    rate of return or uh pre- tax KD cost of
  • 00:22:41
    debt write your assumption whatever you
  • 00:22:43
    are
  • 00:22:44
    doing and second benefit is related to
  • 00:22:47
    benefit because you save in the interest
  • 00:22:50
    cost because of
  • 00:22:52
    subsidized so you take the amount of
  • 00:22:55
    soft loan multiplied by the the
  • 00:22:58
    difference in the interest rate normal
  • 00:23:00
    loan may be available at 8% you get here
  • 00:23:04
    at 6% so 2% is the difference in the
  • 00:23:06
    rate multiplied by annuity factor and
  • 00:23:10
    take this cash flow post
  • 00:23:13
    tax because on the on the saving uh uh
  • 00:23:17
    you you need to uh reflect the tax
  • 00:23:20
    amount uh that you have to deduct net of
  • 00:23:22
    tax benefit will be available again
  • 00:23:24
    discount rate could be uh risk-free rate
  • 00:23:27
    or the pre
  • 00:23:30
    tax learn these very well refer to these
  • 00:23:35
    calculations while you are actually
  • 00:23:37
    solving past exam questions and do a
  • 00:23:40
    rigorous practice on this very very
  • 00:23:43
    rigorous practice will be
  • 00:23:47
    recommended you need to apply this
  • 00:23:50
    technique of
  • 00:23:53
    APV many times examiner will not
  • 00:23:56
    directly tell you to calculate it
  • 00:23:59
    but the exhibit May provide you with
  • 00:24:02
    some information where they indicate
  • 00:24:05
    substantial change would occur in the
  • 00:24:07
    capital structure uh post the new
  • 00:24:10
    project or they may tell you financing
  • 00:24:13
    uh will be from debt so financing side
  • 00:24:16
    effects will uh be there so some hints
  • 00:24:20
    The Examiner will give you instead of
  • 00:24:22
    directly uh telling you that you know
  • 00:24:25
    you should calculate a PV examiner must
  • 00:24:29
    just say Okay evaluate the financial
  • 00:24:31
    suitability of the project Financial
  • 00:24:33
    feasibility of the project now generally
  • 00:24:36
    you would try and calculate the npv but
  • 00:24:39
    if such hints are given you need to tell
  • 00:24:43
    the examiner hey because of these
  • 00:24:45
    Reasons I'm using the APV technique and
  • 00:24:49
    not the general npv
  • 00:24:52
    technique
  • 00:24:54
    so two calculations which you make
  • 00:24:58
    base case npv might be
  • 00:25:01
    negative but if you combine the total of
  • 00:25:05
    value generated with the value of
  • 00:25:08
    financial side effects it may turn to be
  • 00:25:12
    positive and that may mean that you
  • 00:25:14
    should go ahead and accept the proposal
  • 00:25:17
    and therefore interpreting the base case
  • 00:25:20
    inpv and interpreting the present value
  • 00:25:24
    of side effects is very very crucial for
  • 00:25:27
    you very
  • 00:25:30
    crucial of course I mean this technique
  • 00:25:33
    also suffers from
  • 00:25:35
    criticism experts say
  • 00:25:37
    that it it ignores the
  • 00:25:40
    impact that uh change in the capital
  • 00:25:44
    structure is likely to create on the
  • 00:25:48
    value of the firm if you take its
  • 00:25:51
    existing
  • 00:25:53
    operations and this could be tested in a
  • 00:25:56
    very small way in in uh terms of a
  • 00:25:59
    discussion
  • 00:26:00
    question testing your skepticism skills
  • 00:26:03
    once more so beware of this critic it's
  • 00:26:06
    it's mentioned in the Acca study Hub so
  • 00:26:09
    please learn it very
  • 00:26:12
    well I'm showing some you know useful
  • 00:26:17
    calculations uh for for calculation of
  • 00:26:20
    ungeared cost of equity and and this is
  • 00:26:22
    the information that is available to us
  • 00:26:26
    uh Alpha is a well divers by risk King
  • 00:26:28
    uh seeking company it gearing is given
  • 00:26:32
    Equity beta is given and pre-tax cost of
  • 00:26:35
    date is given a proxy
  • 00:26:38
    firm has a certain uh different gearing
  • 00:26:42
    ratio different cost of equity and the
  • 00:26:45
    corporate their corporate date is
  • 00:26:48
    risk-free the tax rate is given and the
  • 00:26:51
    risk free rate is also provided with
  • 00:26:55
    with of course the market risk premium
  • 00:26:58
    now what you need to do I'm I'm going to
  • 00:27:00
    show you both ways in which you can
  • 00:27:02
    calculate the cost of ungeared equity
  • 00:27:05
    first let us uh you know use uh the the
  • 00:27:10
    mm equation where cost of un geared will
  • 00:27:14
    be determined by considering the proxy
  • 00:27:16
    company for which cost of equity geared
  • 00:27:20
    Equity is directly given to us so if you
  • 00:27:23
    input the numbers in the uh mm equation
  • 00:27:29
    you will be able to solve it and and get
  • 00:27:32
    the cost of equity
  • 00:27:35
    16% another way in which you can
  • 00:27:38
    calculate is by process of on gearing
  • 00:27:40
    the beta of proxy and using it in capm
  • 00:27:43
    Formula you your answer should not be
  • 00:27:45
    different but there is one catch in this
  • 00:27:49
    which which I'll definitely tell you and
  • 00:27:51
    the catch is when you make use of this
  • 00:27:56
    formula
  • 00:27:59
    ungeared beta should be directly used in
  • 00:28:02
    capm don't rear it students generally
  • 00:28:06
    make a mistake uh because they are so
  • 00:28:09
    well versed with okay first onar then
  • 00:28:12
    rear no you want ungeared cost of equity
  • 00:28:16
    and and therefore you need to re need
  • 00:28:19
    not rear it but directly apply capm you
  • 00:28:22
    see the uh Answers by both are same
  • 00:28:27
    which is which is of course the uh 16%
  • 00:28:31
    cost of ungeared
  • 00:28:33
    equity so depending
  • 00:28:36
    on your comfort level you could make use
  • 00:28:40
    of any of the approaches in calculating
  • 00:28:43
    ungeared cost of
  • 00:28:45
    equity well
  • 00:28:48
    resources ACC study Hub should be your
  • 00:28:51
    primary resource apart from that of
  • 00:28:54
    course once you learn the
  • 00:28:56
    concepts practice rigorously using the
  • 00:29:00
    Acca practice platform where a lot of
  • 00:29:03
    past exam questions are available to you
  • 00:29:07
    but when you uh look at the past
  • 00:29:11
    performances of the students do not
  • 00:29:13
    ignore examiners observations on how the
  • 00:29:17
    students approach the
  • 00:29:19
    answers and therefore I'm so far as this
  • 00:29:22
    concept is concerned I'm giving some uh
  • 00:29:25
    you know uh comments of the
  • 00:29:29
    examiner look at look at this comment
  • 00:29:32
    which which The Examiner has made
  • 00:29:35
    especially some candidates incorrectly
  • 00:29:39
    calculating geared cost of equity rather
  • 00:29:41
    than ungeared cost of
  • 00:29:44
    equity a conceptual error you know we we
  • 00:29:48
    can't make this error While others
  • 00:29:51
    calculated weighted average cost of
  • 00:29:52
    capital that is also
  • 00:29:54
    wrong candidates making these errors
  • 00:29:57
    need to understand the rational behind
  • 00:30:00
    discount rate
  • 00:30:01
    used in in Bas case MP rational that's
  • 00:30:05
    the conceptual
  • 00:30:07
    understanding look at another
  • 00:30:10
    comment on the whole candidates who did
  • 00:30:13
    not well demonstrated either a lack of
  • 00:30:16
    understanding see lack of understanding
  • 00:30:18
    means they have not prepared themselves
  • 00:30:21
    in the rational behind discount rate for
  • 00:30:23
    base case npv or a lack of question
  • 00:30:27
    practice both are very very
  • 00:30:30
    crucial isolate the effect of one
  • 00:30:33
    business activity in asset beta of a
  • 00:30:35
    diversified company so these are really
  • 00:30:40
    very clear observations made by the
  • 00:30:43
    examin never never forget them never
  • 00:30:46
    ignore them for for your
  • 00:30:50
    preparation so what have we discussed in
  • 00:30:54
    this video will help you in
  • 00:30:57
    understanding
  • 00:30:58
    why APV can be most important technique
  • 00:31:02
    to use uh in in appraising uh an
  • 00:31:06
    investment
  • 00:31:07
    project and and it could either be
  • 00:31:10
    tested in a 50 mark question or in
  • 00:31:12
    section A or a 25 marker in section
  • 00:31:16
    B so that's it from me I wish you all
  • 00:31:20
    the very best for Learning and at the
  • 00:31:22
    same time I thank you very much for
  • 00:31:24
    watching this video
  • 00:31:29
    [Music]
Tags
  • APV
  • AFM
  • valor present
  • finançament
  • avaluació d'inversions
  • NPV
  • fluxos de caixa
  • descompte
  • cost del capital
  • Miller-Modigliani