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Assumptions when answering exam

Forums › ACCA Forums › ACCA FM Financial Management Forums › Assumptions when answering exam

  • This topic has 0 replies, 1 voice, and was last updated 11 years ago by Avatarmng3693.
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  • May 11, 2014 at 8:30 pm #168396
    Avatarmng3693
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    • Topics: 1
    • Replies: 5
    • ☆

    Hi,

    During the exam, under any question, is it possible to rationalize an answer using your own assumptions (given that it doesn’t contradict with the examiners information)?

    Example: In NPV calculations I always have a doubt when adjusting for inflation.

    In certain questions, the examiner has given that there is a cost reduction (net benefit) from the new project. And inflation applies to this benefit as well.

    When I do the adjustment I discount the net benefit from the inflation rate, under the rationale that the benefit gained from the machine is fixed and when costs are increasing due to inflation, the benefit should go down.

    i.e. assume that the new investment will reduce costs required to produce by $10,000. but inflation rate is 10%

    Therefore is it alright to assume that the cost reduction is fixed and that due to inflation, the ACTUAL reduction in cost would be $10,000/1.1 = $9090

    But in most answers, the examiner has adjusted the cost reduction as 10,000 (1.1) = 11,000

    I want to know how correct my method of reasoning is? and if it will be accepted as an answer in the F9 exam?

    Thanks in advance.

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