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Is it enough to show workings for section C as you did in the lectures Mr. Moffat?
1. Just an arrow above the cash flows showing 100000u * $100 pu * 1.05 inflation
2. when calculating sales revenue and variable costs cash flows, do I have to show Contribution or i can go to Fixed costs immediately (time saving) and calculate the Before tax cash flows etc…? (in some DCF questions there is a marking for contribution and in some there isn’t)
3. Q 159 Rev kit
Year df@11% PV
5 – Infinity 2.017.000 5,988 12.077.796df working 1-infinity = 9.090
less 1-4 =(3.102)
5-inf = 5.988IN rev kit it’s this calculation: (2.017.000/0.11)*0.659 = 12.083.664
Which one is correct as there is a slight difference?4. Business finance – cost of debt redeemable – IRR
I choose df 10% first and if NPV positive other df 15%, if NPV negative other df 5%.
In the rev. kit answers they sometimes start with df 4% etc which is the same as the RF rate or premium redemption rate or some other data in the question.
I should probably stick with the 10% df for start, but just asking…Thank you
1. If you are taking the paper based exam, then it is fine to show the workings that way. If you are taking the computer based exam, then enter formulae into the spreadsheet and the marker will be able to see the formulae.
2. You don’t need to show the contribution separately but obviously you do need to show each cash flow separately because each one will be marked separately.
3. This is revision of Paper F2 and is all explained in my F2 lectures on interest and discounting. You either take the discount factor for a perpetuity (1/r) and subtract the annuity factor for years 1 to 4; or, alternatively, you take the discount factor for a perpetuity and multiply by the 4 year ordinary discount factor because the perpetuity starts 4 years late (at time 5 instead of time 1).
The difference is simply due to the fact that the tables are rounded to 3 decimal places and is irrelevant for the exam.4. As I state in my lectures, it does not matter which ‘guesses’ you use to calculate the IRR. Different guesses will give slightly different answers (because any answer is only ever approximate) but will still get full marks.
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