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Hello sir,
I have to clarify one thing from this sitting’s exam (https://www.accaglobal.com/content/dam/acca/global/PDF-students/acca/p4/exampapers/P4-2015-Jun-Q.pdf)
There were three inflation rates given
1 for year 1, then year 2 and then for year 3 onwardThe project was for 4 years
My question is how were we supposed to apply the year 3 onward inflation rate on the year 3 cashflows?i was confused between using inflation rate raised to power 1 vs power 3
so i just applied with power 1 and then power 2 for year 4Although it doesn’t matter now, but i would like to enhance my knowledge
and many thanks for your input, was very helpful for my preparation, especially the clarification of collars 🙂What you do is multiply by (1 + inflation rate) for each year. When then inflation rate is constant each year, then it does mean you multiple by (1+inflation rate)^2 for 2 years, cubed for 3 years and so on.
When the inflation rate changes, you multiply by (1+inflation rate) for each year using the different rates. So (1+inf rate yr1) x (1 + info rate yr2) x (1+inf rate yr 3) etc.I hope the news is good for you in August 🙂
I understand the first sentence of 2nd paragraph but the second sentence confuses me. Does it mean that the effective inflation rate in year 3 for selling price in Euro is 1.05 x 1.04 x 700?
And thanks sir 🙂 I loved P4!
Sir John Moffat
Thank you very much sir, for running this excellent and resourceful website. Whenever I needed help, you were very kind with answering, and patient even if I asked something silly 🙂
I wish you good health and happiness
I qualified ACCA First attempt at all papers
Thank you very much sir 🙂
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