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Dear John,
I hope you are well.
I got lost in the years regarding in the solutions of the above mentioned questions.
All questions state that the cost of investment is payable at the start of the first year of operation and still in the solution of 161 and 162 we use year zero and in the solution of 163 and 164 we perform the calculations from year 1.
I read in BPP text book if the investment is paid a the beginning of the year we should include it at the end of previous year.
Could you please help me to understand when we need to use year 0 and when year one?Thanking you in advance.
Kind regards,
KatalinThere is no such thing as year 0.
0, 1, 2 etc are points in time that are one year apart.
Time 0 is the start of the first year.
Time 1 is the end of the first year / start of the second year
Time 2 is the end of the second year / start of the third year
and so on 🙂It may help you to watch my free lectures on this.
Dear John,
Then why is the difference in the solution for BPP Rev kit q 161,162 and 163,164?
I do watch your lectures. You are a brilliant teacher. I wish you were teaching all the courses 🙂
Thanks a million.Have a nice day.
Kind regards,
KatalinBut there is no difference.
In all four of the questions the initial investment is taken at time 0, and the first operating flows (revenue and costs) are at time 1 (the end of the first year).
They have set out the answer to the last two questions differently, but the only difference is that instead of having a column for 0 the have subtracted the initial investment below the table. But it is only the layout they have changed – the initial investment is still at time 0 – and that makes no difference.
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