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If you know the clause 5b June’2016 where we were supposed to find NPV for perpetuity and decide whether the project was financially acceptable, couldn’t you please provide the decision for this quiestion?
Thanks in advance.
I am not sure what you are asking of me, because the examiner provides the decision in his answer:
“If only the first four years of operation are considered, the NPV of the planned investment is negative and so it would not be financially acceptable. If production and sales beyond the first four years are considered, the NPV is strongly positive and so the planned investment is financially acceptable. In fact, the NPV of the planned investment becomes positive if only one further year of operation is considered”
If you are not clear how he arrived at the figures that gave this decision then do ask again 🙂
many thanks for your quick response, be honest I slightly remember that question, I have just today recalled that there was a weird quiestion in June exam with perpetuity and yes, there was a negative NPV for that period that was given, but after that the NPV was positive and i didn’t know the way of correct answer… Thanks again. I hope this exam will be easier for me:)
Excuse me again, but may I ask you the correct way of calculating ‘g’ in the latest question in Jusne exam? I also doubt whether I was right…
Thanks in advance.sorry, I meant June… There were some ‘g’ figures for some years as far as I remember…. and I am not sure which way of calculation was correst.
Thanks.
excuse me again:)) but may i ask another quiestions that I couldn’t find in my study books:
1) WC – when we provide discount, f.ex. 1% for settlements during 60 days. Our Revenue before discount is $1 m.
when we calculate finance cost we should calculate AR current and AR with discount. My questions are: a) should we adjust current revenue for discount when we calculate new AR (with discount)? I mean, new AR=60/365*1000000 or 60/365*(1000000-1%)?
and b) f.ex., bad debt (BD)=2% of AR more than 60 days. When we calculate decrease in BD should we use the new AR, calculated based on new Sales taking into account discount 1% or we shouldn’t take into consideration 1% discount when we calculate AR and BD and take it into account only when we calculate amount of discount=1%*$1m=10000?
2) Investment appraisal. When we calculate tax relief am I right that every time we can start depriciate and hence claim reducing balance only from the next year after investments? I mean we should invest $100 today, in period T0, but despite the tax payment terms (in arrears or the same period when profits are earned) we can claim starting from the next period, T1 and so we can get first tax relief either in period T1 (in case when tax paid when profit is earned) or in T2 (in case of in arrears) and never in period T0, am I right?Thanks in advance.
1. There are arguments for both (i.e. subtracting the discount or not subtracting it, and the examiner always accepts either (even though the final answer is slightly different). He himself does it one way in some of his answers, and the other way in other answers 🙂
2. Capital allowances are calculated at the end of the accounting period. So when there is an investment at time 0, then the allowance is calculated at time 1. If tax is payable immediately, the the tax affect due to the allowances is at time 1. If tax is payable one year in arrears then the tax affect will be at time 2. (I explain this in detail, with examples, in my free lectures on investment appraisal with tax)
Thanks you very much for your clear answers, I was sure in that calculations, but yesterday faced the wrong answer in BPP practice kit, so I decided i would rather clarify than lose precious marks.
Excuse me again, but may I ask you the correct way of calculating ‘g’ in the latest question in June’2016 exam? There were some ‘g’ figures for some years as far as I remember…. and I am not sure which way of calculation was correst.Thanks.
i think there were not some ‘g’ figures, but some dividends figures in some years with different lags between years
Excuse me, but you don’t know the correct answer how we should have calculated growth in question #4 or 5 in June exam?
The ACCA only publish the hybrid exam (a selection from both the March and June exams)
In question 4 you are told the growth rate, and in question 5 there is no growth rate relevant.
So I am not really sure what you are asking about.
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