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Capital budgeting

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Capital budgeting

  • This topic has 1 reply, 2 voices, and was last updated 6 years ago by John Moffat.
Viewing 2 posts - 1 through 2 (of 2 total)
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  • December 24, 2018 at 6:46 pm #492626
    reem1589
    Participant
    • Topics: 61
    • Replies: 17
    • ☆☆

    Could you please explain how to do this question. the answer is C.

    The following information relates to a two-year project.
    Initial investment $1 million
    Cash inflow Year 1 $750,000
    Cash inflow Year 2 $500,000
    Cost of capital Year 1 10%
    Cost of capital Year 2 15%
    What is the net present value of the project (to the nearest $500)?
    A ($12,000)
    B ($55,000)
    C $77,000
    D $116,500

    December 25, 2018 at 10:09 am #492666
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54701
    • ☆☆☆☆☆

    To get the PV of the year 1 inflow, you multiply by the 1 year discount factor at 10%.

    To get the PV of the year 2 inflow, you multiply by the 1 year discount factor at 15% and then by the 1 year discount factor at 10%.

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