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Blipton International(12/08)

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Blipton International(12/08)

  • This topic has 1 reply, 2 voices, and was last updated 10 years ago by John Moffat.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • October 21, 2014 at 2:13 pm #205241
    student07
    Member
    • Topics: 193
    • Replies: 162
    • ☆☆☆

    Sir could you please help me with above question I am using BPP kit

    a)(i) How is nominal cash flow calculated as

    54.63 527.68 2474.75 —–

    (ii).How do we calculate discount factor suppose 9.2% the answer is
    1.000 0.916 0.839—–

    How is the present value of investment phase calculated as
    (6225) (7367) 406 380 356 Nil Nil

    Thank you so much

    October 21, 2014 at 5:49 pm #205290
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54733
    • ☆☆☆☆☆

    I do not have a BPP Kit – I do not work for BPP 🙂
    However, I do have the actual exam question!

    (i) The cash flows at time 2 are 52 in current prices (i.e. ignoring inflation) and so the actual (nominal) cash flows need to be inflated at 2.5%. Since the flow is at time 2, there will be two years inflation, so the actual cash flow is 52 x (1.025^2) = 54.63

    Similarly the cash flow at time 3 needs inflating for 3 years and so on.

    (ii) the formula for calculating the discount factor is given at the top of the tables. It is 1/(1+r)^n

    So for 1 year it is 1/1.092 ^1 = 0.916
    (However you would not have lost marks if you had simply taken the nearest % (9%) and used the tables. The answer would have been a bit different but would not have lost marks)

    (iii) The investment phase is the initial investment together with the capital allowance tax savings resulting from the initial investment.

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