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A company has agreed to lease a machine for a period of 8 yrs with eual annual payments payable at the start of each year.
Dear sir,My question is that why in calculation they take first payment as a advance payment.
Because the question says that the payments are at the start of each year!
If the payments are made at the start of each year, then the first payment will be at time 0 (the start of the first year), the second payment will be at time 1 (the start of the second year) and so on.
I do suggest that you watch our free lectures on lease and buy, where this is discussed and explained.
Our lectures are a complete course for Paper F9 and cover everything needed to be able to pass the exam well.
But sir g I read in npv assumptions that payment received in start of year mean in year in which it suppose to be occur
For I.e payment received in start of 1/st year mean in year oneTime 0 is a point in time and is the start of the first year. (There is no such thing ‘year 0’).
Time 1 is one year later – the end of the first year / start of the second year
Time 2 is two years after time 0 – the end of the second year/start of the third tear.Kaplan’s wording is the same as the wording I use in my lecture example – I do suggest again that you watch the lectures.
I have also follow your lectures in preparation but now due to exam ahead it is not possible to review each lecture again.
Now i m preparing my exam from your notes and past papers lectures along with little guidance from kaplan book.I extremely thankfull for you,on providing solution of my all quires whatever they r in form.
May ALLAH bless you beyond your expectations.
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