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Furlion Co(mar-june 16)

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Furlion Co(mar-june 16)

  • This topic has 5 replies, 2 voices, and was last updated 1 year ago by John Moffat.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • September 5, 2021 at 11:21 am #634424
    reenatanna
    Member
    • Topics: 9
    • Replies: 6
    • ☆

    In the question pertaining to furlion Co, they have taken the pa(value of underlying asset) as 15m discounted at 12 percent for 3 years.

    They have also mentioned that the NPV of expanded project is estimated at 0.
    So shouldn’t Pa be the value that when discounted at 12 percent becomes 15 so as to make NPV 0?

    September 5, 2021 at 7:51 pm #634495
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51582
    • ☆☆☆☆☆

    No, Pa is the discounted value.

    September 5, 2021 at 8:05 pm #634502
    reenatanna
    Member
    • Topics: 9
    • Replies: 6
    • ☆

    I have an understanding gap here.. how is it so?

    September 5, 2021 at 8:27 pm #634514
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51582
    • ☆☆☆☆☆

    If the NPV is 0, then the PV of the returns must be equal to the PV of the investment of 15m in the 3 years time.

    Therefore the PV of the returns must be equal to the PV of 15m discounted for 3 years,

    September 5, 2021 at 9:22 pm #634515
    reenatanna
    Member
    • Topics: 9
    • Replies: 6
    • ☆

    If PV is discounted for 3 years at current value, then it comes to around 10.68mn.. which makes the NPV negative.. 15Mn (investment) -10.68mn (returns). The. NPV would be negative 4.32mn. right?

    September 6, 2021 at 8:26 am #634539
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51582
    • ☆☆☆☆☆

    The PV now of the investment of 15M is $10.68.

    The NPV now is zero.

    Therefore the PV of the returns must be 10.68M (and is Pa).

  • Author
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