Page 175 - 5.2 i. Manac Finance ITC Summarised Notes

THE FINANCING DECISION

Determining the most cost-effective

form of finance

• the net present cost in South African rand of the associated

finance-related cash flows (including the implications of

taxation), using an appropriate risk-adjusted discount rate;
and/or

• the internal rate of return per annum of the associated
finance-related cash flows (including the implications of

taxation), taking cognisance of different exchange rates

• This process is fairly simple when comparing, for

example, different loan options denominated in rand.

• However, foreign debt finance introduces further

complications, including: changes in exchange rates,

foreign exchange risk and country risk.

175