CIMA Risk Management P3 Question # 95 Topic 10 Discussion

CIMA Risk Management P3 Question # 95 Topic 10 Discussion

P3 Exam Topic 10 Question 95 Discussion:
Question #: 95
Topic #: 10

A project requires a capital investment of £2.7million. The project will save £450,000 each year after taxation. Assume the savings are in perpetuity. The business risk of the venture requires a 15% discount rate. The company has to borrow £1million to finance the project at a rate of 9% and the net tax shield is 30%, the project supports debt which generates an interest tax shield of 0.30 x 0.09 x £1million, which is £27,000 per year in perpetuity.

Calculate the project's adjusted present value.


A.

£(30,000)


B.

0


C.

£570,000


D.

£600,000


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