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FM

Discounted Cash Flows - Net Present Value - ACCA Financial Management (FM)

VIVA Subject Guide
YouTube video

32 Comments

  1. Sabi
    Could we not use the NPV excel formula here?
  2. John MoffatTutor
    Yes of course - you should use excel. However it is still important to understand the logic, and you can be tested on the logic in Section A of the exam.
  3. Sabi
    Yessir, it is indeed important to understand the logic. Thanks very much for replying and recording the lessons!
  4. Soraya
    keeps telling me to logon to watch the videos but I am logged in. Help
    \
  5. John MoffatTutor
    Please ask in the technical problems forum and someone will be able to help you.
  6. Taifoor
    Hi Sir, what's the difference between effective rate of return and internal rate of return?
  7. John MoffatTutor
    The internal rate of return is the rate of interest for which the NPV is zero.

    Effective return can mean several things depending on the context.
  8. Tena
    So term ''discounting'' is not value of future money in terms of today, its just adjustment of CF for cost of buying asset at some interest rate? Just to be sure how to use this term in general, not just for this exam. if yes, why not calculate this interest cost on asset value (maybe loan is on asset value)? Great lecture as always!
  9. Amina
    why 1.1 the percentage is 0.1 i dont understand
  10. John MoffatTutor
    If X is the value now, then in 1 years time it will have grown to X + 0.1X which is equal to 1.1 X.

    I do suggest that you watch the Paper MA lectures on Interest and on Investment Appraisal, because the basic discounting is revision of Paper MA.
  11. Fahad
    Sir why didnt we include the cost of borrowing 80,000, since this 80,000 was borrowed for this project and we are paying cost for it.
  12. John MoffatTutor
    The reason for discounting is to account for the cost of borrowing.
  13. Leila
    This lecture doesn't seem to correspond to the chapter 9 example 1 in the AFM notes.
    Just wanted to let you know.

    Always great lectures though thank you John. You've got me through PM, FM and now hopefully AFM :)
  14. Leila
    Ignore me, for some reason I found my way back to an FM lecture not the AFM. apologies!
  15. John MoffatTutor
    :-)
  16. Dennis
    sir is the cost of capital after tax?
  17. John MoffatTutor
    We always use the after-tax WACC when discounting, and the WACC is always after-tax unless a question specifically says otherwise which is not likely.
  18. zukile
    Hi

    Are you not allowed to just calculate everything using a financial calculator?
  19. Robert
    how do i download lecture videos?
  20. John MoffatTutor
    Neither project is worth doing!
  21. karang
    Hi sir,

    Have two doubts
    1. When real cost of capital and nominal cost of capital is given in the exam question. Which cost of capital is to be used for discounting cash flows (As in past exam questions the examiner has always used nominal cost of capital even after adjusting cash flows for inflation).

    2. In one of the questions it was given that initial investment is funded by loan notes in that case the tax savings in case of interest is to be used in calculation of cash flow? however examiner has not used tax savings on interest in cash flows.

    Thanks sir in advance
  22. John MoffatTutor
    In future you must ask this kind of question in the Ask the Tutor Forum and not as a comment on a lectures.

    1. We discount nominal act flows at the nominal cost of capital - this is explained in my lectures on investment appraisal with inflation.

    2. It does not matter how the particular investment is financed - we discount at the cost of capital and the interest flows (or tax saved) do not appear in the cash flows because they are accounted for in the cost of capital. Again this is explained in my later lectures.
  23. liudi
    dear sir, you mentioned that inflation doesn't influence the calculation of NPV, why? can you explain a little bit more?
  24. John MoffatTutor
    What I said was that inflation is not the reason that we discount.

    I explain the impact of inflation in the later lectures in the series on investment appraisal.
  25. liudi
    yes, I will go on learning
  26. John MoffatTutor
    :-)
  27. faith20ul19
    I would like to know if the reservations highlighted in this video lectures cut across all investment appraisal or does one need to consider the nature of the investment itself, the type of business and industry as a whole before making those reservations.
  28. John MoffatTutor
    The reservations are reservations of the DCF technique in general. The nature of the investment etc. might result in extra reservations depending on the circumstances.
  29. faith20ul19
    Okay sir. Thank you for the clarification.
  30. John MoffatTutor
    You are welcome :-)
  31. faith20ul19
    Thanks for this well explained video lecture. A very good start to the remaining chapters ahead.
  32. John MoffatTutor
    Thank you for your comment :-)

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