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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Effective rate
Hello Mr Moffat,
My question is about ”June 2010, Question 1, part I”.
When we want to calculate the NPV of annual operating surplus of 2015 – 2044. In this case the cashflow is increased by 4% per year and discount factor is 10%. So is it possible to use effective discount rate method ?!!
I mean :
Effective rate = 1.04/1.1 = 1/1.0577 = 5.76%.
Now using annuity formula, we have:
Time Discount factor
1-32 14.45
1-2 (1.53)
——–
12.61
So the present value of cash inflows are : $100M * 12.61 = $1261M.
But the ACCA answer is $1060M.
Thank you in advance
I am sorry but I am on vacation and do not have the June 2010 question paper with me.
I get home on Sunday, so please ask the question again then and I will be able to look at the question and then answer you 🙂