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I worked out all these questions in my opinion they have the payment in advance in common, when I checked the answer of MCQs I was correct in adding 1 to the discount factor but when I checked the answer of Q147 AGD Co. the discounting factor remained the same even though the lease payments were made in advance, can you please help?
Thanks
Adding 1 to the discount factor is only relevant when it is an annuity starting at time 0 (because the annuity discount factor deals with flows starting at time 1, and the discount factor for a flow at time 0 is 1.
In AGD the answer has not used annuity factors – each year has been discounted separately using the ordinary present value discount factors (and the flow at time 0 has, of course, a discount factor of 1).
(If you are still unsure about using annuity factors that it would be worth watching my free Paper F2 lectures on discounting, because all the actual discounting in F9 is revision of F2)
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