Forums › ACCA Forums › ACCA AFM Advanced Financial Management Forums › Arbore Co-Dec 2012 part (a) i
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- July 28, 2016 at 6:51 pm #330030
Dear Sir,
When calculating the NPV of Project Dur05 my answer differed from the model answer. But I am not quite clear why.I had a negative NPV as opposed to a positive. I found that the difference emanates from the discount factor.
Net cash flows is 970
my treatment:
11% annuity factor for 15 years 7.191
less 11% annuity factor for 3 years 2.444
this equals 4.747so the PV of the cash flows would be 4.747 x 970 = 4605
PV of investment face is = 4718 giving a negative NPV of $113I have no issue with the net cash flows and pv of the investment.
The answer has a different discount factor: The examiner uses
7.191 x 0.731I understand that 0.731 is the discount factor for 11% at year 3. but this is not consistent with my answer because 7.191 x 0.731 x 970 = 5099. This gives a positive NPV of $381
Any time I used the above approach for a delayed annuity I always found the right answer. But not this one. Is the examiner’s approach not the same as mine?
Please help
Kind regards
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