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NP for kr - IP or MP
Financial Management
Hii could someone clarify my following doubt regarding FM COC? In the illustration 13 of ICAI SM, the net proceeds for kr is Market price whereas in the practical sum no 5 of ICAI study material, net proceeds for kr is Issue price. Could anyone tell me when should MP and IP be used for the purpose of kr computation?
Answers (3)
In Illustration 13 the sum is regarding making a financing decision to determine the cost of the sources of finance for the decision has to be determined. To fund a project, they have to issue new shares. This comes under exception of Kr is not equal to Ke when new issue with floatation cost is made. In practical sum the question is regarding computation of cost of finance there is not going to be any issue. So, they considered that IP. Please check with some external sources based on my inferences from the sum solved I found this. When issue is going to be made, MP. When no issue is made just to determine the cost consider IP,
Institute has stated that For computation of Kr MP may be considered as NP (as per Illustration 13). It also say that alternatively even IP may be considered as NP (practical problem 5). So any method can be considered, but please mention a note about the alternative method also.
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