Hello Sir, for PYQ dec 2007 Q3
the present value of the project (Pa)
is it calculated wrong by the examiner as its not calculated for the PV for delayed 2 years later?
https://www.accaglobal.com/my/en/student/exam-support-resources/professional-exams-study-resources/p4/technical-articles/investment-appraisal.html
(example 1)
similar to acca technical article at above which the cash flows are delayed to year 3 onwards?
Thank you.
Ask the Tutor ACCA AFM
Digunder
6y ago#1In both Digunder and the technical article, Pa is the PV 'now' of the future flows.
(I assume you have watched my free lecture on this where I work through an example very similar to Digunder.)
Yes I know Pa is the PV of the future cash flows as the timing is different, the cash flows affected by the discount rate will be different.
As the PV of cash inflows is $28m from time 1 to time 3(3 years period), with the option can be delayed to year 3(2 years later) onward to time 5
6y ago#3I am sorry but I do not understand you.
In both cases Pa is the PV of the future cash flows. In Digunder you are effectively given the PV of the future cash flows. In the technical article you have to calculate it yourself by discounting the future flows.
If 28 is present value of 3 years project (1 2 3) & we're considering to delay this project for the next 2 years then it means cash flow will arise from year 3 to 5 years. So why in Kaplan Kitt 28 which already present value is being discounted at .826 ?
4y ago#5I do not have the Kaplan Kit. However given that the project will be delayed 2 years, 28 is the PV in 2 years time. Therefore Pa (the PV 'now') needs the 28 to be discounted for 2 years.
Sign in to reply to this topic.