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sir in the question they have mentioned – The estimates are based on using the end of the first year, when the project commences, as the start of the project (Year 0). The numbers are given in ARD million.
that would mean the project starts after 1 year and in the NPV layout shown in the question year 0 should be considered a s year 1 right?
DOUBT – so if that is the case when we find out the present value of cash flow after taking into account additional adjsutment we should we year 1 12% discount factor to discount cash flow of year 0 and year 2 12% discount factor to discount cash flow of year 1 in the answer they havent done that why is that?
Despite the dreadful habit of the examiner mentioning ‘year 1’, ‘year 2’, etc.
0, 1, 2 etc when we are discounting are not years but are points in time that are 1 year apart (just as was the case in Paper FM).
Time 0 is the date of the first flow.