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Arbore Co (12/12, Amended)

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Arbore Co (12/12, Amended)

  • This topic has 11 replies, 4 voices, and was last updated 4 years ago by John Moffat.
Viewing 12 posts - 1 through 12 (of 12 total)
  • Author
    Posts
  • March 5, 2019 at 5:51 pm #507834
    skyisthelimit
    Participant
    • Topics: 24
    • Replies: 95
    • ☆☆

    Good evening Sir,
    Sorry to disturb.

    I am working the question Arbore Co in BPP kit and I have having issues over two silly things for part a (i):

    1) The annuity factor used to discount the net cash inflows for Year 4 – Year 15 for discount rate of 11%. Isn’t it Yr 15 Annuity factor – Year 3 annuity factor (7.191 – 2.444)?
    I have read the answer in the kit but I cannot understand why did they multiply the A.F of Year 15 by Year 3 from the P.V to calculate the present value of the net cash inflows.

    2) For the sensitivity of selling price, I am not sure i can write the answers exactly from the kit here but I calculated sensitivity as follows:
    Sensitivity Of sales revenue and then calculated the fall amount in sales in revenue based on the % calculated . Afterwards, divided the fall in sales revenue figure by 300,000 units. And the answer of that representing the fall in selling price per unit.

    However, the BPP answer is totally different and it is a bit confusing given it is not like a normal sensitivity analysis calculation.

    Only these two things I cannot really understand in this question, even if it is very silly given they are rather easy marks.
    I would be very grateful if you could help me with these two issues Sir.
    Apologies for all the troubles caused.

    Thank you for your help and guidance Sir.

    March 6, 2019 at 5:43 am #507925
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54675
    • ☆☆☆☆☆

    1. The flows are not 4 to 15. The commence at time 4 and last for 15 years, so they are from 4 to 18.
    To discount you either take the 18 year annuity and subtract the three year annuity, or alternatively take the 15 year annuity (because there are 15 years of flows) and then multiply by the 3 year factor (because the annuity starts 3 years late). Both methods will give the same answer (apart from rounding, which is irrelevant).

    2. For the sensitivity, we divide the NPV (383,000) by the PV of the revenue flows (22,083,588), which gives 1.7%.

    March 6, 2019 at 9:35 am #507976
    skyisthelimit
    Participant
    • Topics: 24
    • Replies: 95
    • ☆☆

    Thank you very much Sir. It is much clearer now. Thank you for your help.

    Have a good day ahead Sir. 🙂

    March 6, 2019 at 11:59 am #507992
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54675
    • ☆☆☆☆☆

    You are welcome 🙂

    November 18, 2020 at 7:05 pm #595495
    livvymiles1992
    Member
    • Topics: 0
    • Replies: 1
    • ☆

    Sorry John..please can you explain how you got the $22,083,588 figure for the PV of revenue flows?

    Thanks,
    Olivia

    November 19, 2020 at 8:19 am #595533
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54675
    • ☆☆☆☆☆

    Where are you finding this question?

    The reason that I ask is that I am looking at the original exam question and answer and I cannot see a figure of $22,083,588 anywhere in the answer.

    I am wondering if you are looking at it in one of the Kits and that maybe they have amended the question (and therefore also the answer)?

    December 2, 2020 at 3:56 pm #597401
    riskyaccounting
    Participant
    • Topics: 8
    • Replies: 32
    • ☆

    Hello John

    I have the BPP kit and the answer provided for the sensitivity analysis is quite complicated. I, however, calculated it as follows:

    7.191*.PV of sales = 4.2m * 7.191*0.731 = 22,088m

    381/22088 *100 = 1.7%

    Would answering the question this way be alright?

    December 2, 2020 at 4:13 pm #597404
    riskyaccounting
    Participant
    • Topics: 8
    • Replies: 32
    • ☆

    PS, why is it that in part (b) of the answer, they’ve used 383X5 instead of 381X5?

    The NPV of the project is 0.381 m

    December 2, 2020 at 4:29 pm #597411
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54675
    • ☆☆☆☆☆

    Regarding the first of your two posts, what you have done is fine (and is what I would have done 🙂 )

    December 2, 2020 at 4:31 pm #597413
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54675
    • ☆☆☆☆☆

    As far as your second post is concerned, it should be 0.381 and not 0.383.

    December 2, 2020 at 4:32 pm #597414
    riskyaccounting
    Participant
    • Topics: 8
    • Replies: 32
    • ☆

    Ok, got it. Many thanks, John!

    December 2, 2020 at 4:32 pm #597415
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54675
    • ☆☆☆☆☆

    You are very welcome 🙂

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Viewing 12 posts - 1 through 12 (of 12 total)
  • The topic ‘Arbore Co (12/12, Amended)’ is closed to new replies.

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