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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 NilThank you so much
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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