Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › june 2011 BRT co part b
- This topic has 3 replies, 2 voices, and was last updated 9 years ago by John Moffat.
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- April 20, 2014 at 2:20 pm #165734
hello Sir,
Can you please explain the post fourth year calculation in part b . I dont understand it completely.
thanks in anticipationApril 20, 2014 at 4:23 pm #165738The answer has used the dividend growth formula from the formula sheet – Po = Do (1 + g) / (r – g)
Even though the formula is usually used for growing dividends, the same formula can be used for any flow with growth.
However, usually we use the flow at time 0 and get a value at time 0. In this case the constant growth starts at time 4, so we use the flow at time 4 and get a value at time 4. To get a value now, we then need to discount the result for 4 years using the 4 year discount factor.
May 13, 2014 at 5:38 am #168612why they have calculated once with inflation and once without inflation?
May 13, 2014 at 12:24 pm #168646Because it is not clear in the question whether the flow will have inflated in year 5 or whether it will be the same as in year 4.
So either answer was acceptable.
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