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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › discounting
the question says that in january 1 20X1 company x invested in machinery, which is used for reasearch and development in that year. from 20X2 to 20X4 sales begin. first of all, i calculate everything -sales revenue, variable costs, fixed costs, working capital and so on- and find the net cash flows, which i then discount at the given rate. my question is: if i discount them, i find the their values at the beginning of 20X2. given that the project began on january 1, do i have to discount them back to 20X1 again?
one more thing; let’s say selling price is $8 in 20X2 (in current terms), and it is subject to inflation, which is 5% from 20X1 onward. then, would it be inflated by $8*1.05 in 20X2?
Time 0 is 1 Jan 20X1. The first operating flows occur at the end of 20X2 and are therefore from time 2 to time 4. Why do you want to find the values at the beginning of 20X2? You would discount them directly to time 0, discounting by 2 years, 3 years and 4 years.
As far as the selling price is concerned, if it is $8 in current terms, then the first receipt at time 2 will be 8 x 1.05^2
(Why are you attempting a question for which you do not have an answer? You should be using a Revision Kit from one of the ACCA Approved Publishers – they have answers and workings!)