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Sir,
Pls refer bpp revision kit investment appraisal sec B qn no.7(c)Bell Ding Dong merrily…Cash inflows and outflows are given…and inflation rates of both the above are given..but what does money terms mean and how they are inflated.how npv calculated?How 3000 become 3121 instead of 3060 how the inflation rates applied!!!Totally confused?
I don’t know which edition of the BPP Revision Kit you are using, but the current edition has no section B and question 7 is nothing to do with inflation. So I cannot help you with your specific question.
Money terms (or nominal flows) is the actual cash flow after accounting for inflation.
This is all explained in my free lectures for Paper FM (used to be called F9). The lectures are a complete free course and cover everything needed to be able to pass the exam well.
sir,
The qn is:
Merrily is considering investing $1000000 in a project which will produce the following annual outflows and inflows:
year 1 2 3
outflows($000) 1800 2500 1500
inflows($000) 2000 3000 2000
The cash flows which arise at the end of each year,are stated in current year terms.It is expected that outflows will rise by 3% pa and inflows by 2% pa.The money cost of capital of the merrily Division is 9%
??????????What is the NPV of merrily’s project t(to the nearest $000)?
Ans:$(61000)
i am confused with the charging the inflation to the inflows and outflows??
plss reply me!3,000 in 2 years time, will inflate for 2 years at 2% p.a..
The cash flow will therefore be 3,000 x (1.02)^2 = 3,121
Again, you must watch my free lectures, because this is very basic and is all explained in detail, with examples. You cannot expect me to type out all my lectures here 🙂
Thank you so much sir!!!!For spending time to answer my silly questions.It’s so helpful!!
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