# Solving questions about flotation costs of equity and NPV

Is the only way to calculate NPV by hand, by discounting each individual cash flow one by one, totaling, and subtracting the initial amount of equity that was raised? Click this link to view an answer explanation for a module quiz from Kap; if anyone can explain how to do this on the TI BA II I would appreciate it:

https://ibb.co/qY5fhwH

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The calculator has an NPV function.

Put in CF0, CF1, …, CFn and i and calculate NPV.

Simplify the complicated side; don't complify the simplicated side.

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Yes thank you. Respectfully, I’m aware of how to use the CF keys and NPV but what do you use for the discount rate? The cost of equity?

Simplify the complicated side; don't complify the simplicated side.

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In solving some other multi step problems I have to calculate YTM on bonds to find the cost of debt. For semi-annual pay bonds the solution is multiplying the YTM by 2, why is this?

When you say that you multiply the YTM by 2, what you mean is that you multiply the effective semi-annual yield by 2.  This gives you the bond equivalent yield (BEY), which is simply the convention for quoting the annual yield on bonds (as opposed to, say, quoting the effective annual yield (EAY)).  It’s a nominal annual rate with semi-annual compounding, much like the annual rate on a (monthly-pay) mortgage is a nominal annual rate with monthly compounding.

Simplify the complicated side; don't complify the simplicated side.

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S2000magician wrote:

When you say that you multiply the YTM by 2, what you mean is that you multiply the effective semi-annual yield by 2.  This gives you the bond equivalent yield (BEY), which is simply the convention for quoting the annual yield on bonds (as opposed to, say, quoting the effective annual yield (EAY)).  It’s a nominal annual rate with semi-annual compounding, much like the annual rate on a (monthly-pay) mortgage is a nominal annual rate with monthly compounding.

Well ill be damned, you just filled in a massive gap that was left by Kaplan. Thank you so much for that explanation, it makes perfect sense now.

My pleasure.

Simplify the complicated side; don't complify the simplicated side.

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