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- This topic has 5 replies, 3 voices, and was last updated 2 years ago by John Moffat.

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- June 24, 2020 at 3:28 pm #574620
hi sir i have watched the lecture relating to this topic but i don’t get how to do copper co A) i

June 24, 2020 at 4:50 pm #574628What topic is it?

June 25, 2020 at 12:57 pm #574665investment appraisal

June 25, 2020 at 3:12 pm #574678The actual discounting involved is easy. Most of the work involved using techniques from previous exams (Papers FA and PM – were F2 and F5)).

There are 9 possible things that can happen:

1M in the first year and then 2M in the second year, with a probability of 0.1 x 0.3 = 0.03 or

1M in the first year and then 3M in the second year, with a probability of 0.1 x 0.6 = 0.06 or

1M in the first year and then 5M in the second year, with a probability of 0.1 x 0.1 = 0.01 or

2M in the first year and then 2M in the second year, with a probability of 0.5 x 0.3 = 0.15 or

2M in the first year and then 3M in the second year, with a probability of 0.5 x 0.6 = 0.3and so on.

Calculate the PV of each of the nine alternatives and then the rest should follow sensibly 🙂

July 27, 2021 at 3:01 am #629523Sir, I dont understand how did they calculated 1,013 , 216 , 1,378 etc – NPV

July 27, 2021 at 9:00 am #629551The NPV is the PV of the inflows less the initial investment.

So, for the first line in the table, 2,487 – 3,500 = (1,013)

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