BPP 116 FW Co

Hi Sir,

the question ask about the impact on the pv of receipt and the impact is NIL.

I don’t really understand why the impact is NIL but not increase.

I try to understand it, is it mean that the current receipt of $10k under real terms we should multiply by inflation rate since it expects to inflate. So the present value for this receipt will increase.

Besides, we should use money cost of capital instead of real rate. Thus, the discount factor will reduce eg 0.917 to 0.909 and the present value of receipt increase. The increase in pv and the decrease of discount factor will offset each other and bring no effect.

My understanding is it correct sir?Thank you very much.