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danique says

Hi John in eg 7….. The project duration

When calculating the NPV we ignore the initial investment? Cause I’m seeing 307,162

But I assumed we working a regular NPV and I subtracted the 240000 and ended up with 10 years duration which I thought to be long …..

John Moffat says

It is just as with the Macauley Duration. We divide by the PV of the future cash flows, not the NPV.

Ihmant says

Dear John,

Completely lost in this one. When I compare this to ACCA September/December 2016 Sample Answers, the question about Fernhurst, they calculate the project duration ar half of the value in 2.78 years by dividing the NPV of the project with multiplied proportions of the returns, eg (1×0.165)+(2×0.227)+(3×0.275)+(4×0.333) that gives the answer of 2.78 years. If I solve it using the technique in presentation I get 8.84 years, which seem unrealistic. Also there is no answer for Ex7 in course notes, and the course notes (pg. 53) state that the project duration “is a measure of the average time over which a project delivers it’s value”, other sources tell this is a measure of the time the project delivers half it’s value?

Which method is the correct one? Am I using the project duration where necessary or I should be using another technique?

John Moffat says

Both techniques give the same result – I don’t know what went wrong in your calculation.

Think about it – multiply the PV’s by the years and then dividing the total by the NPV has to give the same as multiplying the PV/NPV but the years and then adding up.

Also, the two statements that you write in inverted commas are both saying the same thing đź™‚

John Moffat says

As I say in the lecture, the arithmetic is the same – the Macaulay duration applies to bonds, the project duration applies to projects!

neka4real2004 says

Ok. Thank you

John Moffat says

You are welcome đź™‚

neka4real2004 says

So Please, what is the difference between the Macaulay duration and the Project Duration???