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2010 june Q1

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › 2010 june Q1

  • This topic has 3 replies, 2 voices, and was last updated 10 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
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  • October 19, 2014 at 6:56 am #204898
    jess
    Member
    • Topics: 36
    • Replies: 19
    • ☆☆

    Hi sir,

    for the discount factor of annual operating surplus, why it is 14.11 x 1.1*-3 and not 14.11 x 1.1*-4 since it is on time 4?

    October 19, 2014 at 9:34 am #204911
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54759
    • ☆☆☆☆☆

    If the flow had started at time 1, then you would have just used 14.11 (the annuity factor for 30 years) and this would have given a present value at time 0.

    However it starts 3 years later (at time 4 instead of time 1) and so multiplying by 14.11 will give a value 3 years later also (at time 3 instead of time 0).

    So we need to discount by three more years to get the present value.

    October 19, 2014 at 5:47 pm #204990
    jess
    Member
    • Topics: 36
    • Replies: 19
    • ☆☆

    Why we discount by 3 more years? the surplus starts at time 4, why we do not discount by 4 more years (14.11 x 1.1*-4)?

    October 19, 2014 at 9:47 pm #205024
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54759
    • ☆☆☆☆☆

    As I wrote before, if it started in 1 years time then you would get a present value at time 0.

    If it started in 2 years time you would get a present value at time 1.

    It starts in 4 years time, so using the annuity factor gives a present value at time 3.

    The annuity factor discounts the flows by 1 year, 2 year, 3 year and so on.

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