Effective rate

Hello Mr Moffat,

My question is about ”June 2010, Question 1, part I”.
When we want to calculate the NPV of annual operating surplus of 2015 – 2044. In this case the cashflow is increased by 4% per year and discount factor is 10%. So is it possible to use effective discount rate method ?!!

I mean :
Effective rate = 1.04/1.1 = 1/1.0577 = 5.76%.

Now using annuity formula, we have:

Time Discount factor
1-32 14.45
1-2 (1.53)
——–
12.61

So the present value of cash inflows are : $100M * 12.61 = $1261M.
But the ACCA answer is $1060M.

Thank you in advance