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I cant seem to get the right answer for this current mock exam I just did.
10% Cost Capital,NPV includes Residual Value of 20000,NPV = 55Cash Flows Year 1 130
Year 2 130
Year 3 130
Year 4 130
Year 5 150I am getting 4.41 but answer is 4.47
I looked at your youtube video but does not include NPV + Residual Value???
So dont know how to treat these??? ACCA just seem to love to throw these things into the mix
ThanksThe residual value is discounted in the normal way depending on when it occurs.
Hi John still a bit confused as to how to get 4.47 years.This is my working
Year 1 130 x .909 = 118.17
Year 2 130 x .826 = 107.38
Year 3 130 x .751 = 97.63
Year 4 130 x .683 = 88.79 411.97
Year 5 150 x 0.621 = 93.15Inv 450 – 411.97 = 38.03/ Year 5 93.15 = .41 so I am getting 4.41??
Where is the other 0.06 coming from??
It is because you have discounted each of the 130 per year individually rather than using the annuity factor (which would have been faster). As I explain in the lectures, that creates a rounding problem because the tables only go to three decimal places.
That will not be a problem in the exam because the computer will either allow more than one answer or will ask for an answer rounded to (for example) the nearest thousand.
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