- This topic has 1 reply, 2 voices, and was last updated 3 years ago by John Moffat.
Viewing 2 posts - 1 through 2 (of 2 total)
Viewing 2 posts - 1 through 2 (of 2 total)
- You must be logged in to reply to this topic.
Specially for OpenTuition students: 20% off BPP Books for ACCA & CIMA exams – Get your BPP Discount Code >>
Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › capital budgeting
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
this is how l had calculated it which happens to be wrong
kindly help the best way you can
year cashflow discounting factor present value
0 (1000 000) 1 (1000 000)
1 750 000 0.909 (at 10% year 1) 681 750
2 500 000 0.870 (at 15% year 1) 435 000
500 000 0.909 (at 10% year 1) 454 500
getting the total PV of 571250
The flow at time 2 needs discounting for 2 years.
We discount for 1 year at 15% and then for another year at 10%.
So multiply the flow by the 1 year factor at 15% and then multiply the result by the 1 year factor at 10%.
Have you watched my free lectures on this? The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.