• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
Free ACCA & CIMA online courses from OpenTuition

Free ACCA & CIMA online courses from OpenTuition

Free Notes, Lectures, Tests and Forums for ACCA and CIMA exams

  • ACCA
  • CIMA
  • FIA
  • OBU
  • Books
  • Forums
  • Search
  • Register
  • Login
  • ACCA Forums
  • Ask ACCA Tutor
  • CIMA Forums
  • Ask CIMA Tutor
  • FIA
  • OBU
  • Buy/Sell Books
  • All Forums
  • Latest Topics

ACCA December 2022 Exam results:
* Pass rates * Comments * Instant Poll * Competition *

Specially for OpenTuition students: 20% off BPP Books for ACCA & CIMA exams – Get your BPP Discount Code >>

Investment Appraisal

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Investment Appraisal

  • This topic has 3 replies, 3 voices, and was last updated 2 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • September 2, 2020 at 5:58 pm #583156
    james8500
    Member
    • Topics: 48
    • Replies: 9
    • ☆☆

    An investment of $120,000 on 1 April 20X6 is forecast to yield a net cash flow of $14,000 each year for four years commencing on 31 March 20X7, followed by $20,000 each year in perpetuity. The appropriate cost of capital is 8% per year.

    What is the positive net present value of the investment (to the nearest $1,000)?
    Answer is 93,000.

    Can you please explain this? As I understand it:
    (120,000)
    1-4 14,000*3.312 46,368
    Perp. (20,000/0.08)*0.735 110,000

    My Answer – 110,118. <<110,000 to nearest ‘000

    Thank you!

    September 3, 2020 at 9:33 am #583210
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51529
    • ☆☆☆☆☆

    Either you have mistyped the question or there is an error in your book.

    Your workings are correct (although you have mistyped one of the figures).

    (20,000/0.08) x 0.735 = 183,750 (not 110,000).

    46,368 + 183,750 – 120,000 = 110,118.

    September 3, 2020 at 5:14 pm #583286
    nbhutia
    Member
    • Topics: 29
    • Replies: 21
    • ☆☆

    Hi

    I believe its 14000x df which is 3.993-1st year df 0.926= df of 3.067

    14000* 3.067= £42938
    20000/0.08x df 0.681= 170250

    42938+170250-120000= 93188 approx 93000
    20,000 perpetuity starts in year 5 I believe.
    year 2-5 less yr 1 annuity

    September 4, 2020 at 9:22 am #583355
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51529
    • ☆☆☆☆☆

    nbhutia:

    No. The first 14,000 is in 1 years time and so the annuity is 1 – 4.

    The 20,000 perpetuity starts at time 5. So it is discounted using 1/0.08 and then discounted using the normal 4 year discount factor because it starts at time 5 instead of time 1.

  • Author
    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • You must be logged in to reply to this topic.
Log In

Primary Sidebar

ACCA News:

 

ACCA My Exam Performance for non-variant Applied Skills exams is available NOW

NEW! Download the ACCA Pass Guide

FREE Verifiable CPD for ACCA Members

ACCA mock exams and debrief videos

ACCA Options:  “Read the Mind of the Marker” articles

Subscribe to ACCA’s Student Accountant Direct

Donate

If you have benefited from OpenTuition please donate.

ACCA CBE 2023 Exams

Instant Poll * How was your exam, and what was the result?

BT CBE exam was.. | MA CBE exam was..
FA CBE exam was.. | LW CBE exam was..

Specially for OpenTuition students

20% off BPP Books

Get BPP Discount Code

Latest comments

  • AkilaShaikh on Capital asset pricing model (part b) – ACCA Financial Management (FM)
  • AkilaShaikh on Capital asset pricing model (part b) – ACCA Financial Management (FM)
  • hamza5168180 on Revenue – allocation – ACCA Financial Reporting (FR)
  • John Moffat on MA Chapter 4 Questions Cost Classification and Behaviour
  • John Moffat on Capital asset pricing model (part b) – ACCA Financial Management (FM)

Copyright © 2023 · Support · Contact · Advertising · OpenLicense · About · Sitemap · Comments · Log in


We use cookies to show you relevant advertising, find out more: Privacy Policy · Cookie Policy