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Dear Sir, May i ask the second option for machinery for the calculation id depn where the 20% come from?
and why the estimated value did not using growth model to calculate which 0.1-0.08?
Thank youAccording to the question, the machine part business accounts for 20% of the non-current assets.
The question says that the cash flows will increase by 8% in the first year only. We would only use the growth model if the flows were to increase by 8% each year.
thank you sir
However, i have another question from question 3 same set of pass year
ans state:As a result of the exchange rates on the initial fee being fixed at the year 0 spot rate, Buryecs Co has gained $5,000 million x (0·1430 – 0·1315) x 0·675 = €39 million.why it is a gain not a loss? initial fee exchange in year 4 will be lower than year 0 but ans state is gain and where they 0.675 come from?
below is my calculation.
0.1430=eur 715
0.1315=eur 658thank you
In future please start a new thread when you are asking about a different question. The reason is that people often use the search box to check whether there is already an answer to their question.
The gain is because they had agreed that the principal of 5,000 would be converted at the current spot rate. This mean that they received 715, whereas if they had not agreed this then they would have hd to convert at the rate in 4 years time and would only have got 658.
So the agreement gained them the difference of 57.The 0.675 is the 4 year discount factor to get the gain in present value terms.
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