FIN.18:5.2 - A policy difference calls for qualification before a new default

Consider the policy question already developed in FIN.5. A corporation comparing an annual market-value debt-share policy with a finite fixed-debt schedule has two different financial strategies. The matched annual-policy case gives NPV about −0.13, while the stipulated finite-debt alternative gives about +2.49. Selecting the latter calculation because it is positive, then keeping the annual policy in the actual financing plan, combines incompatible grounds.

FIN.18’s useful return is to retain the method matched to the policy actually under consideration and carry both conditional strategies to the financing choice if that choice remains open. A software change that implements both formulas can support the comparison; it cannot choose the policy. Once the financing strategy and risk/tax grounds are supported, FIN.17 recomputes the relevant appraisal and FIN.16 returns the changed advice. A specialist valuation method is needed only when the actual case exceeds those supported constructions.