D
dChetty
Member
Hi
I am referring to part (ii) of the solution. The solution says the EV calculation allows for the cost of capital, but the NAV does not. I understand this.
Then the solution says, All else being equal, the two methods would only come up with the same answer where the risk discount rate used in the EV was the same as the assumed rate of return on the assets in both the EV and the NAV. Please explain in simple terms.
I am referring to part (ii) of the solution. The solution says the EV calculation allows for the cost of capital, but the NAV does not. I understand this.
Then the solution says, All else being equal, the two methods would only come up with the same answer where the risk discount rate used in the EV was the same as the assumed rate of return on the assets in both the EV and the NAV. Please explain in simple terms.