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Hi, I have a question regarding June 2013 exam question 1. In the answers, when calculating Mlima Co value without Bahari project, it is shown that PV after four years is 656,9×0,659=432,7. Why it is discounted as these where fourth year cash flows?
thank you
The flows that you are looking at are the flows from 4 years onwards. These have a value of 656.9 in 4 years time (using the dividend growth formula to deal with an inflating perpetuity). Since it is a value in 4 years time, it needs discounting by 4 years to get a PV now.
This is then added to the PV of the flows for the first four years.
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