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Deffered consideration , cost of capital Q47 Patronic bpp

This topic has 2 replies, 3 voices, and was last updated 11 years ago by sarmadkhalid45.

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November 28, 2012 at 11:23 am #55868
fairy :)
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why is a cost of capital of 10% for 2 yrs, of £43560, calculated as “43560 x(1/1.21) “
i dont understand the (1/1.21) ????
help pleaseee
November 28, 2012 at 12:20 pm #109103
Sangria9
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This denominator represents discounting for 2 years for 10%.
its 110%*110%, or 1.21
If you have to do this for 3 years, you would have 110% * 110% * 110%, or 1/ (1.1. in the third degree).
December 2, 2012 at 1:34 pm #109104
sarmadkhalid45
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As sangria said right, our formula for present value is :
present value=F*1/(1+r)n
Where “F” is the factor , “r” is rate of capital and “n” is the period .
There “n” use as the power of brackets..
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