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sir this is a silly doubt but can u pls explain in ques 1 i do get the workings of working capital for part a but i dont understand why have they inserted the incremental wc for year 2 in year 1 for the npv calculation. can u explain how do we have to deal with figures when a ques says “start of year or end of each year”.
also sir in ques 3 part b of this paper can u pls explain how is there an increase in financing cost because of the discount .isnt it good that less money is out of the company?
thanks alot
O, 1, 2 etc are not years – they are points in time that are 1 year apart.
So time 0 is the start of the first year.
Time 1 is the end of the first year / start of the second year (i.e. 12 months after time 0)
Time 2 is the end of the second year / start of the this year (i.e. 2 years after time 0)This is always the case (and I do suggest that you watch the free lectures on investment appraisal).
In part (b) accepting the discount means that they have to pay out money sooner. If they pay out money sooner than it is costing them interest (which has to be balanced against the saving as a result of getting the discount).
Again I do suggest that you watch the free lectures. They are a complete course for Paper F9 and cover everything you need to be able to pass the exam well.
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