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q23,bpp revision kit arboe
in calculation of pdur05 NPV annuity factor of return 11 % shouldn’t the inflows be multiplied by .593 *7.191
since its said in the Question cash flows begin from end of fourth year.Start of 5th present value is .593 .But in answer its solved with .731 ie; end of 2nd year.Is it a printing mistake ,shouldn’t we count from year cash flow begin ??
The answer is correct.
If the annuity had started in 1 years time then multiplying by the 15 year annuity factor would give a PV ‘now’.
Here, the annuity starts in 4 years time (which is 3 years later) and so multiplying by the annuity factor gives a PV in three years time, which then needs discounting for 3 year to get a PV now.
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