AFMBlipton International

you have to multiply it wid by the uk inflated rate that is given 2.5%

so the nominal cash flow is 52000 x (1.025) ^2 = 54633
for the next year it will be 490000 x (1.025) ^3 = 527676 and so on.

i am not sure abt the reason behind it..will confirm and let u know soon. hope this helped!!

Because cashflows r in real terms.We have top mak it in absolute terms.

Yes that is correct.
Nominal cash flows = actual cash flows (including inflation)
Current price cash flows = cash flows ignoring inflation (and so therefore need inflating).

Similarly, the nominal cost of capital is the actual cost of capital, whereas the real cost of capital is the cost of capital with the inflation removed.

@johnmoffat said:
Yes that is correct.
Nominal cash flows = actual cash flows (including inflation)
Current price cash flows = cash flows ignoring inflation (and so therefore need inflating).

Similarly, the nominal cost of capital is the actual cost of capital, whereas the real cost of capital is the cost of capital with the inflation removed.

OK thank you very much. I couldnt understand how come I wasnt getting the answer. Thanks again. I'll try it again.

Good day sir can you illustrate the calculation for the terminal value. I cannot get an appropriate answer.

The question says that the cost of construction is $6.2M. It also says that property values are expected to increase by 8% p.a.. So in 6 years time we will expect it to have increased to $6.2M x 1.08^6 (PS In future, if you want me to answer then please ask in the Ask the Tutor forum. This forum is for students to help each other.)

Hi, could you please advice how did the examiner came to 0·6552 Forex rate at 31 dec 2009? As for me rate should be calculated in accourdance with PPP formula (dollars should be the base currency) so 1,4925 x 1,025/1,048 = 1.4597 if we inverse it it gives 1/1.4597 = 0.685...

Sir, could you please answer the question I posted...

Sir no need to answer, I got it, there is a trick: PPP formula from formula sheet could be only applied in the following order: e.g. if we take $/pound spot x-rate ($ first here) we should multiply it by $ inflation/pound inflation ($ first here again)

Petrochina: This is not the Ask the Tutor Forum - I do not regularly look in this forum. It is for students to help each other (and I usually only comment here if someone is writing something wrong that confuses other people). If you want me to answer then you should ask in the Ask the Tutor Forum. (And there is a free lecture on forecasting future spot rates, which would have solved the problem !! I trust that you are watching the free lectures :-) )

ok)