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Sir this is question one of mock exam from bpp.In this they have given projected financial data for next five year and incremental wc is — (1) (2) (3) (3)
But in solution while calculating estimates of the pv of future cash flow from existing operations Why have they added these figure back. ThanksI am sorry, but I do not have BPP’s mock exam and so without seeing the full question I cannot help.
Hi John. This is Dec 95 question. The title is Daron. In appendix 1, 20X9-Y3 annuity calculation is done by takin PV of 5 years @ 13% and AF of 5 years @ 13%.
But in Arbore (Dec 2012),when calculating the npv ko Pduro 5 why 7.191 is taken? Why the PV of 4 years and AF of 10years (4 – 15 years) @ 11% discount rate is not taken?In Abrore, the flows last for 15 years, so they are for years 4 to 18.
As always with annuities starting late, you can either take the annuity factor for 18 years and subtract the annuity factor for 3 years (so as to be left with the total for 4 to 18)
or, alternatively
take the annuity factor for 15 years (because there are 15 flows) and then multiply by the 3 year present value factor (because the annuity starts at time 4 instead of time 1, which is 3 years late).Both approaches will give exactly the same answer, but here the second approach is the easier because you are not given annuity factors for 18 years and would have to calculate it using the formula.
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