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Duration with negative cash flows

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Duration with negative cash flows

  • This topic has 1 reply, 2 voices, and was last updated 6 years ago by John Moffat.
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  • August 19, 2018 at 3:32 pm #468516
    duybachhpvn
    Member
    • Topics: 48
    • Replies: 34
    • ☆☆

    Hi John,

    Regarding the Project Duration calculation, how will the calculation change when there is a negative cash flow in the middle of project time? Lets say the investment costs were at Y0, then followed by initial positive cash flows in Y1 and Y2, then negative in Y3 either because of additional investment or lower sales, then followed by positive cash flows in later years. Then, how do we deal with such negative cash flow in Y3 in the duration calculation? Do we subtract it from the Sum of PV * year?

    Thank you

    August 19, 2018 at 5:25 pm #468532
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54674
    • ☆☆☆☆☆

    You would include the negative cash flow in Yr 3 in the calculations in exactly the same way as you would if it was positive (expect obviously you would be subtracting rather than adding).

    I certainly would not expect this to ever be relevant for the exam.

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  • The topic ‘Duration with negative cash flows’ is closed to new replies.

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