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Hi sir, what will be the exact year/time if question states “end of the next year”?
The correct year given is year 1, but may I know why?It depends on the rest of the question (as to when this year is!).
There is no such thing as year 0, year 1 etc.. They are actually points in time that are 1 year apart (so that we can discount for whole years).
Time 0 is now, and is the start of the first year.
Time 1 is the end of the first year – it is 1 year from now.
Time 1 is the start of the second year – it is also 1 year from now.
Time 2 is the end of the second year, which is 2 years from now.
Time 2 is also the start of the third year.And so on…
Unless told differently we assume that operating flows (sales, expenses) occur at the ends of years. So the sales revenue for the first year is at time 1, for the second year is at time 2.
I really do suggest that you watch our free lectures on investment appraisal. Our lectures cover everything you need to be able to pass the exam well – they are a complete course.
Alright. Thanks for your explanation and advise. I am going to watch the free lectures now. thanks =)
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