Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA APM Exams › 2012june q1
- This topic has 9 replies, 5 voices, and was last updated 8 years ago by Ken Garrett.
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- November 25, 2014 at 5:57 am #212952
sir can u explain how to get the pv as at 2012 and pv of initial investment at 2012?
November 25, 2014 at 6:18 am #212956why the pv is more than the cash flow? why we do not discount the cash flow and why we are not taking 2010 as the first year?
November 25, 2014 at 8:20 am #212995It’s a really weird approach and you shouldn’t worry about it. But the figures have been worked out by calculating the terminal value of the project as at 2012.
So, the 600,000 was invested 3 years ago. If it had been simply kept in the bank at 12.5%, it would be worth 600,000 x (1 + 12·5%)^3 = $854,297.
The 2010 receipts of 141,840 could have been deposited at 12.5% for 2 years and would now be worth 141,840 x (1 + 12·5%)^2 = $179,516 and so on.
Don’t spend time on this – I’m sure it was a once off that few students would have done like this.
December 1, 2014 at 3:26 pm #215194In this question Metis how do you get the dcf factor at 12.5%. The pv tables only give whole numbers ie 12%
December 1, 2014 at 6:22 pm #215353Discount factor = 1/(1 +r)^n
where r = discount rate in decimals
n = period of the flow
^ = raise to the powerSo a 3 year d/c factor = 1/(1 + 0.125)^3 = 0.702
December 2, 2014 at 8:32 am #215760Very kind of you thank you very much.
December 4, 2015 at 3:25 pm #287571Hi Gromit,
Under this question I see the cash inflows for MIRR are calculated using the 4.5% deposit return rather than the 12.5% cost of capital. Why is this the case?
Thanks,
Ed
December 4, 2015 at 4:29 pm #287592return phase-discounted at the reinvestment rate
investment phase-discounted at the cost of finance
(when no reinvestment rate is known, cash flows are assumed to be reinvested at the cost of capital since it it the minimum required by investors)December 4, 2015 at 4:33 pm #287593Thanks Rashid,
I’ll be conscious of this in the exam and if no reinvestment rate, I will state my assumption that reinvestment rate is same as cost of capital as outlined above.
Regards,
Ed
December 4, 2015 at 4:40 pm #287596Correct.
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