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Sir, in this question wording of the years, is weird such as Year 1 is T0, Year 2 is T1, Year 3 is T2 and so on. Nevertheless, my concern is relating to the NPV calculation of part a (i). The question states that project 5 will earn cash flows at the end of year 4 which will last for 15 years. I have assumed that the year 4 in this question is T3 and discounted at 3-17 factor. However, the examiner has discounted at annuity factor from 4-18. This is changing my NPV.
So why are the assumptions different? Have I missed something in the question?
There is nothing weird at all!!
Time 0, time 1, etc are points in time that are 1 year apart.
Time 0 is ‘now’, and is the start of the first year.
Time 1 is one year from now, and so is the end of the first year and the start of the second year.
Time 2, is two years from now and so is the end of the second year and the start of the third year.This is fundamental to all the discounting, and I really do suggest that you watch the free Paper F9 lectures on investment appraisal where I make this point clear.
Why do you assume that the end of the 4th year is time 3? It is time 4 as I have explained above.
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