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Hanwood AFM – Discount factor year 5

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Hanwood AFM – Discount factor year 5

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.
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    Posts
  • January 18, 2024 at 4:32 pm #698596
    vdfb
    Participant
    • Topics: 16
    • Replies: 30
    • ☆

    Hello,
    for part a)
    When calculating the present value for year 5 onwards, why is the discount factor 0.683 ?
    Since it is for year 5, shouldn’t it be 0.621 ?
    Thanks

    January 19, 2024 at 10:01 am #698638
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54761
    • ☆☆☆☆☆

    Had the flow been from time 1 onwards then the formula would have given the PV at time 0.

    Here the flow is from time 5 onwards, which is 4 years later, and so the formula gives the PV at time 4 (i.e. 4 years later as well). So to get the PV ‘now’ we need to discount the result for 4 years.

    (I do cover this point in my free lectures 🙂 )

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