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blipton international (dec/08)

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 6 years ago by John Moffat.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • July 11, 2016 at 3:25 pm #325419
    collegejeanz
    Member
    • Topics: 1
    • Replies: 2
    • ☆

    can u tell me how to calculate how to calculate terminal value of property in the question?

    July 11, 2016 at 6:40 pm #325482
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51529
    • ☆☆☆☆☆

    The 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 #325501
    collegejeanz
    Member
    • Topics: 1
    • Replies: 2
    • ☆

    I 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 #325534
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51529
    • ☆☆☆☆☆

    First, 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 #325574
    collegejeanz
    Member
    • Topics: 1
    • Replies: 2
    • ☆

    Thnkx sir

    July 12, 2016 at 9:42 am #325607
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51529
    • ☆☆☆☆☆

    You are welcome 🙂

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