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Calculate PV of this perpetuity discounted at 6% (Mock exam 2/page 221)

Forums › ACCA Forums › ACCA MA Management Accounting Forums › Calculate PV of this perpetuity discounted at 6% (Mock exam 2/page 221)

  • This topic has 1 reply, 2 voices, and was last updated 11 years ago by John Moffat.
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  • February 9, 2014 at 11:34 am #157240
    Nhan
    Member
    • Topics: 4
    • Replies: 7
    • ☆

    An investment will produce an annual return of $1,500 in perpetuity with the first receipt starting in 3 years’ time.
    What is the PV of this perpetuity discounted at 6% ?

    —
    I can’t do this questions and i try reading this answer for it but aslo dont understand. Help me, explain step by step .
    tks in advance

    February 9, 2014 at 2:21 pm #157308
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54755
    • ☆☆☆☆☆

    Get the discount factor from 1 to infinity, which is 1/6 i.e. 1/0.06

    Then subtract the total factor for the first 2 years (i.e. the annuity factor for 2 years at 6% from the tables).

    The figure you are left with is the discount factor for 3 to infinity.

    (There is another way as well – it gives the same answer, but the way above is the easiest and most obvious way.)

    (I do not know what you mean by mock exam 2 on page 221 – I presume that is BPP, but I do not work for BPP!)

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