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Hi john.Hope you doing well.
I am a bit confused on the Bpp answers for Laceto. Using the Free cash flow model basis to workout the value of omnigen why the earnings of 2005 which is $19m in present value they are discounting it again when finding the cashflow from 2006 to perpetuity. we would have nedded to discount it back using 2005 discount factor if we had used the 2005 earnings of
$32m .They are already using the present value of $19m of 2005 and again discounting it with 2005 discount factor.IS it correct?please clarify john.You can do it either of two ways and they will give the same answer.
Either take the 32.3 and put it in the growth model formula. However the formula gives a PV assuming the first receipt is at time 1. Since the first receipt here will be 4 years later, at time 5, then the answer needs discount for 4 years at 14%.
The alternative is to do what the examiner did and take the 19.1 and put it in the growth model formula. Because the 19.1 was after discounting for 4 years, we don’t need to discount the answer from the formula for 4 years.
Thanks a lot John for your kind help.wish me luck for tommorows exams.Thank you again from the core of my heart for all your help.
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