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Sorry to bring this up again but I’ve just watched your excellent lecture on WACC (ch. 17.3). Here you say that the examiner always expects you to use tables, but in reply to a recent question I posted (FM Discount Factors vs Formula) you said it doesn’t matter whether I use formulas or table values.
Can you please clarify.
Thanks
The examiner assumes you will be using the tables given that they are provided, but that does not mean that you have to. It is irrelevant whether you use the tables or use the formula. (Provided, of course, that you are not using a financial calculator to use the formula that displays letters as well as numbers because those are banned in the exam)
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Ok thanks. I was a little concerned because using formulas can get you a slightly different present value than if you use the table, especially if you are discounting over a number of years. But I guess in the CBE the workings are there for the examiner to see.
and the result is more accurate!
Yes – it is slightly different because the tables are rounded to 3 decimal places.
In Section C it is irrelevant, partly because they can see your workings, but also because usually you are asked to show figures to the nearest $thousand.
In Sections A and B the numerical questions are designed in a way to avoid the problem (usually again by asking you for an answer to the nearest $thousand) although because of the enormous time pressure it is probably faster to use the tables anyway.
(NPV calculations in practice can never be regarded as accurate for many reasons – as I explain in my free lectures. The examiner takes this into account in exam questions 🙂 )
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That’s reassuring. Many thanks.
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