Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › blipton international (dec/08)
- This topic has 5 replies, 2 voices, and was last updated 7 years ago by John Moffat.
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- July 11, 2016 at 3:25 pm #325419
can u tell me how to calculate how to calculate terminal value of property in the question?
July 11, 2016 at 6:40 pm #325482The cost of the hotel now is $6.2M. Property values are increasing at 8% per annum, and so the value in 5 years time = 6.2 x 1.08^5 = $9.110M
July 11, 2016 at 7:13 pm #325501I did the same thing but the question say that the residual value of the investment over the six year is assumed to be the open market value of property less a charge for repairs and renewals. Repair and renewal value is £ 1.2 million in current price payable on disposal. And answer show terminal value of property in 31dec2014 is £8.915million .. guide me about this figure
July 12, 2016 at 7:08 am #325534First, because the value is increasing at 8% in real terms (i.e. ignoring general inflation), the actual rate of increase will be higher. It will increase by 10.7% p.a. ((1.08 x 1.025) – 1)
Secondly, because note 1 of the question says that construction costs are paid at the end of the year, there is will only be 5 years inflation at 10.7%
Finally, note 3 in the question says that there is a charge for repairs and renewals payable on disposal of 1.2M quoted at current prices.
So…the net amount is (6.2M x 1.107^5) – (1.2M x 1.025^6)
which is 10306941 – 1391632 = 8915309
A horrible exam question (but the final value of the property was only worth 1 mark) 🙂
(And BPP have a different answer, which is completely wrong!)
July 12, 2016 at 7:47 am #325574Thnkx sir
July 12, 2016 at 9:42 am #325607You are welcome 🙂
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