Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › EXAM KIT – QUESTION 18.SLOW FASHIONS
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John Moffat.
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- November 10, 2014 at 6:19 pm #208888
Hello Dear Tutor.
Can you please make for me clear two questions :
for the above mentioned question in A.I is written that IRR can’t be calculated on proportion of projects and therefore calculation is assumed on whole project. why ?
in the same question B maximum cost of capital is calculated 10% + PI index 0.07652=17.652 . if we calculate by this we get negative NPV -121.
can you explain please why was rate calculated like this ?thank you in advance,
November 11, 2014 at 8:28 am #208988With regard to your first question, we could calculate the IRR on just a proportion of a project – that is what I would have done in the exam.
With regard to your second question, remember that it is looking at short-term funding just for one year. After one year there is no problem – they can borrow more at 10%. They can do the remaining projects if they borrow extra for one year – albeit at a higher rate.
November 11, 2014 at 7:30 pm #209190Thank you John Moffat,
November 12, 2014 at 12:29 pm #209326You are welcome, Shota 🙂
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