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Leaminger Co (FMC, 12/02)

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Leaminger Co (FMC, 12/02)

  • This topic has 9 replies, 3 voices, and was last updated 10 years ago by John Moffat.
Viewing 10 posts - 1 through 10 (of 10 total)
  • Author
    Posts
  • November 28, 2013 at 9:19 am #148207
    irahlylons
    Member
    • Topics: 2
    • Replies: 4
    • ☆

    Hello sir, i have problem regarding on hoe to calculate the finance lease for the discount factor.

    This is the solution i have :

    year Cash flow Amount 10% DF PV

    20X3 – 20X6 Annual rental+maintenance cost.
    135,000 +15,000. (150,000). How to determine this df value?
    I always getting problem with this ( i dont know when
    Add 1.000 or minus…

    And the leasing for operating….
    I hope that sir can help me.. Tq

    November 28, 2013 at 9:28 am #148208
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    The 150,000 is payable in X3 – X6. i.e. time 1 to 4 and so we use the 4 year annuity factor at 10% which is 3.170

    However, the rental flows for the operating lease are payable in X2 – X5.
    The means that they are paying first at time 0 – for this the discount factor is 1
    They are then paying for 3 more years – i.e. time 1 to 3. So for this bit we use the 3 year annuity factor at 10% which is 2.487

    Either discount the two separately (140,000 x 1; then 140,000 x 2.487) and add them together.
    Or alternatively just take 140,000 x (1 + 2.487), which obviously gives the same answer.

    November 28, 2013 at 9:52 am #148221
    irahlylons
    Member
    • Topics: 2
    • Replies: 4
    • ☆

    And 1 more questionsir, how to identify whether the year is in year 1 or 0 ? I keep on confusing with this.

    November 28, 2013 at 10:24 am #148233
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    We are not talking about 12 months periods. Time 0, time 1 etc are points in time that are one year apart.

    So……if there is the first cash flow at the start of an accounting year then this is time 0.
    If the next cash flow is at the end of the same accounting year, then this is one year later (for discounting purposes) and is therefore time 1.

    November 28, 2013 at 10:52 am #148248
    irahlylons
    Member
    • Topics: 2
    • Replies: 4
    • ☆

    Ok sir i get did… Tq sir

    November 28, 2013 at 10:55 am #148251
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    You are welcome 🙂

    November 11, 2014 at 9:08 am #209013
    nari
    Member
    • Topics: 261
    • Replies: 176
    • ☆☆☆

    Hello John

    Regarding part B of the question which deals with capital rationing, I do not understand why the answer for the finance lease is $345,810. Kindly explain using values. Thanks

    November 11, 2014 at 9:59 am #209031
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    There is only capital rationing for one year – in one years time more finance becomes available.

    The finance lease does not require any cash until one year from now, and so is not taking any capital away from the marginal project.

    The other two options require cash immediately and so do result in a loss from not being able to do all of the marginal project.

    I don’t see what values you expect from me since the answer for the finance lease stays the same as for part (a) (which presumably you are happy with) and the reason is as I have written above!

    November 11, 2014 at 1:15 pm #209085
    nari
    Member
    • Topics: 261
    • Replies: 176
    • ☆☆☆

    Well now that you have explained it John, I know there’s no need for values. Thanks for the explanation.

    November 11, 2014 at 1:28 pm #209092
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    You are welcome 🙂

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