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BPP MOCK 3 QUESTION 32 PART B

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › BPP MOCK 3 QUESTION 32 PART B

  • This topic has 1 reply, 2 voices, and was last updated 3 years ago by John Moffat.
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  • March 10, 2022 at 10:16 am #650788
    shaunak22
    Participant
    • Topics: 220
    • Replies: 41
    • ☆☆☆

    DOUBT 1) could you please check a solution thye have calcaulated PI using a different formula that is {NPV / INITIAL INVESTMENT } the formula in the textbook is CASH INFLOW / INITIAL INVESMENT would it be correct to use the NPV formual in the text book since it is quicker?

    DOUBT 2) in the solution is the ranking process wrong since project B PI is 1.6 & project c PI is 1.7 still they have ranked project B as first and project C is exlcuded is that a mistake or is there some explanation for that?

    March 10, 2022 at 3:13 pm #650867
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54701
    • ☆☆☆☆☆

    1. We never take the cash flow / initial investment and I cannot believe that it says that in your text book. We either rank on the basis of the NPV/initial investment or on the PV of the cash flows / initial investment (and the answer to this question in the BPP Revision Kit actually states that!!!).

    2. The solution is not wrong. The problem is that B and C are mutually exclusive and therefore if they do B they cannot do C, and similarly if they do C then they cannot do B.

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