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Hello, Sir.
I have a doubt regarding investment B annuity factor. The calculation done (7.843-3.307) this i understood since we need annuity factor of from T5 to T25.
But after multiplying with this annuity factor, wont we get the value at start of year 5 and we have to further discount it using year 4 discount rate?
No.
7.843 gives the PV at time 0 if the flows were from time 1 to 25
3.307 gives the PV at time 0 if the flows were from time 1 to 4
Subtracting one from the other gives the PV at time 0 for flows from 5 to 25.
If you are still unsure then do watch the free Paper MA lectures on discounting where this is explained with examples.
Understood. Can you explain in case (Mlima Co June 13) Appendix 3 value of Bihari project.
The freecashflows are the same from year 6 to year 15 we have used the annuity factor for 10 years @ 11% and then multiplied with the discount factor of year 5? why we have multiiplied it here. Please explain.
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