Tramont co

There is no such thing as year 0!

Time 0 is a point in time. It is the start of the first year.

Time 1 is a point in time 12 months later. It is the end of the first year / start of the second year.

Time 2 is a point in time another 12 months later – then end of the second year / start of the third year.

And so on.

The above is vital for the exam, because it is the whole reason that we discount for whole years.

Also, we always assume that operating flows (revenue and expenses) occur at the ends of year unless told otherwise.
So the first operating flow is at the end of the first year, which is Time 1.

With regard to Tramont, the question specifically says that the revenues and costs given apply to the first year of operation. So those are cash flows that will apply at time 1 – the end of the first year, It is only in the later years – time 2 onwards – that the flows will inflate.

(Occasionally, you will be told that the flows are quoted at current prices (which means the estimates we have made before even buying the machine, at todays prices). In that cash the first years flows at time 1 will be inflated)

I really do suggest that you watch my free Paper F9 lectures on investment appraisal with inflation, because this is revision of F9 but dealing with inflation occurs in almost every P4 exam.

It is not investment!!!!

The investment is 230M at time 0.

The 450M is the money from the sale of the production rights at the end of the four-year period (see the second sentence of the second paragraph of the question).