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Sir,
In the first two years of operations, acceptance of this project will mean that other work making a net contribution before indirect cost of $150 million for each of the first two years will not be able to proceed.And in the answer it is called redeployment of labour.
Is that mean
Before indirect cost of 150m for each two years of cost -> this cost move to another work so no cost from year3?
And does not count anymore from yr3
Not so sure the meaning and why called redeployment of” labour”
could i know the meaning of these sentences?Appreciate the reply!
And is the reason of annuity factor (year 2-6)of tax saved that tax payments and credit will be charged or received 12 month after they arise?
So since it is five year projec5 T1-T5 to T2-T6?
So the n=5
r=7.2% (5.4 LIBOR+ 1.8)
But i could not get 3.084 as annuity factorThanks for the help!
The 150 is an opportunity cost. By investing in this project they will lose 150 a year for the two years that they would otherwise have been receiving.
(I don’t know why the examiner called it redeployment of labour, except that the reason that the other work could not be done is most likely because the workers needed for it will instead be working on the new project. (Redeployment of labour means moving the workers))It is only lost for two years because that is what the question says.
The 3.804 is the total of the five discount factors calculated in the line above ( 0.870 + 0.812 + 0.757 + 0.706 + 0.659 )
oh yes. so if coming out in exam, then it can just say opportnity cost. thank you!
but still trying to find the annuity factor,
i thought when calculating the fiancing effects
the annuity factor uses the formula or annuity table
(1- (1+r)-n^)/ r)so in neptune
i did calculate based on 5 years at 7.2% (kd) which is 4.08%
just as calculated in the fubuki questionbut may i know where to find the these discount factors
as i only could find the discount factors in based case npv discounted for 5years at 9%
it is quite confused.Thank you !
The discount factors are for year 2 to 6.
So you have two choices, either do as the answer has done and calculate for each year separately and then add up.
(So for two years it is (1/1.072)^2, for three years it is (1/1.072)^3, and so on.Alternatively use the annuity formula at 7.2%. However because it is years 2 to 6 you need to calculate the factor for 6 years and then subtract the factor for 1 year (so as to be left with the total for years 2 to 6). (The answer may be a tiny bit different, but that will simply be due to rounding and will not lose any marks)
(If something like this is needed in your exam and you find it takes you a long time to use the formulae, then use the tables for the nearest % (i.e 7%). Say that you are doing that. You might lose 1 mark, but if it would otherwise take you a long time it is better to lose 1 mark then lose time that you could be spending on other questions 🙂 )
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