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Why has he distributed working capital for 4 years? I normally deduct WC form year zero and add back it in the last year of the project.
I don’t understand what the examiner has done in that question.Sorry. I understood what he has done. This is the first question I came across like this. It is Increasing by 3% each year because of inflation.
Thank youIt is because we are asked to work out the present value of the flow in perpetuity.
The discount factor for a perpetuity is 1/r (where r is the relevant interest rate – here 12%).
I hope that makes sense – it you are not sure about the rest of the calculation in part (b) then ask again (1/r is for when the cash flow starts at time 1 – here it starts later and so we need to discount for the extra years)
PS The ACCA has asked everyone to no longer publish the names of the examiners, so I have removed his name from your question 🙂 )
That is great, thx for your reply, now it makes sense the way you explained it 😀
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