1. why do we multiply 7.191 for 970,000 ? it's annual cash flows, does it mean that we need annual cash flow yearly till the year 15 ???
2. to get 897,110, answer sheet have divided 4717,000 using (7.191 x 1.11^-3)
My question is why do we divide by 1.11^-3 again when the composition of 4717,000 (2500000 + 1081000 + 1136000) -> all are already discounted value ???
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ARBORE CO (DEC 12 ADAPTED)
8y ago#1The first flow is in 4 years time, it lasts for 15 years and so the last flow is in 18 years time.
Therefore to get the PV we multiply by the 15 year annuity factor and then discount for a further 3 years because the annuity starts 3 years late (at time 4 instead of time 1).
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