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Hey john i want to know that what is the treatment of incremental fixed cost is it simple or it works like incremental wcap
In NPV cash flows we need to show all extra or increment cash flows.
So any extra fixed costs are brought in (but only if the total fixed costs of the company do change).
Cant get you properly can you explain me with shrt example ? About incremental fixed coat ? suppose in year 1 f.c is 776 and in year 2 it will inflated and figure is about 792 so it is possible that if f.c is incremental so in year we only write 16 ?
@Saad
i think it should be 792 rather than 16
incremental here is opposite to sunk, it tells us to include these figures into appraising, nothing morewhen we deal with WC figures, it’s tricky:
since WC is balance sheet item, firstly we have to confirm if these figures are year-end balance, or change for each year
in most cases, WC figures are balance, we need find out the changes by subtracting retrospectively, as 16 you mentionedbut it’s irrelevant to costs, as costs are not balance figures
in the exam i put in 750k x 1.06 for year one, then that answer x 1.06 for year two, that answer x 1.06 for year 3 etc etc.
it ended up giving me a negative NPV in the exam. worried now i completely did it wrong.
In the exam I did: –
yr 1 $750 x compound yr 2 $750 x compound (2 time period) etc
Is this wrong? & I got $0 NPV for question no. 1.
2014 Exam paper now on ACCA website..
???
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