Urgent! CFAI 2012 Afternoon Session Question 32 Q32

Hello guys. Some help please

In this question to calculate capitalisation rate they use WACC - g which is good but for WACC they use 11% (approxiamtion i guess for 11.28% which we get it in question 31) Now if we use 11.28% instead of 11% we get to an aswer which is closer to A

75.425 / 0.1128 - 0.005 or 75.425 / 0.0625 = 1206.800

now when you substruct the debt 48 you get 1206.8 - 48 = 1158.8


A 1130

B 1209

C 1257

thank you

Cause it said to use the other analyst’s WACC, that WACC is 11%…

My question is why do you subtract BV of debt, shouldn’t it be Market Value of debt?

Thank you…

Coz you use FCFF to value the firm and therfore you use book values to get to FCFF

Then u must substruct book value of debt to get to equity value

because you are finding value of equity using FCFF so back out debt.