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Hi,
In infation question, We are calculation money cost of capital i.e 20.96% and then discounting the cash flow at the rate of 20.96% for the period 0 the discounting factor is 1, for period 2 DF is 0.8267 and for period 3 its 0.6835. I don’t understand why is that.as in the PVtable Discount rate of 20% for period 1 is 0.833 and for period 2 is 0.694.
Thanks
I do not have the Kaplan Kit (only the BPP Revision Kit) and so I cannot answer you properly without seeing the question you refer to.
However, it would be unusual in Paper FM for you to be expected to calculate the discount factor using the formula (because that is tested in Paper MA (was F2). Usually (and certainly in a Section C question) you would be expected to use the nearest % in the tables provided, as I explain in my free lectures.
Both BPP and Kaplan are ACCA Approved Publishers, and both are as good as each other.
Referring back to your original question, although it is unusual in Paper FM to be asked to discount at an interest rate that is not in the tables provided, it can happen. So to be safe make sure you can calculate the discount factor yourself using the formula provided at the top of the tables (and of course it is even easier if it was needed in a Section C question because you would be doing it in the spreadsheet).
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