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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA APM Exams › Lecture 16 – MIRR eg
Hi Sir,
Sorry to disturb you.
For Lecture 16 – MIRR eg:
5826 (PV at Yr 0) = 10,312 (FV at Yr 4) * Discount Factor of 4 yrs.
May i know why is it multiply by the discount factor and not divide since the formula is FV = PV (1+i)^n? This is the part that i am confused about.
Thanks.
I can’t find these figures. Are you using the latest notes? I do not have earlier versions.
The idea,is to discoumt outflows back to the present and project inflows to the future. The project is then represented by two flows: an outflow at time 0 and an inflow at time 4 (say).
Ar MIRR the NPV of these is zero, so
Time 0 flow = Time 4 flow x 4 yr DC factor.
4 yr DC factor = Time 0 flow/Time 4 flow.
Dear Sir,
I listened to the online lectures (video recordings) in which there is this example.
I understand the rationale of doing MIRR, however, i do not know why do we have to take (Time 4 flow * 4 yr DC factor) and not take (Time 4 flow divide by Discount of 4 yrs) to get present value since the formula is FV = PV (1+i)^n.
Thanks!
Hi Joanna,
I think that the formula that you are refering to is the same as that of Ken Garret.
PV=FV/(1+I)^n which is the same with Time 4 flow*4 year DC factor. Just the 4year DC factor =1/(1+i)^4.
Hope this helps ,
It depends whatmyou mean by ‘discoumt factor’
To discount a time 3 flow at 10% you divide the time 3 flow by 1.1^3
This is the same as multiplying the time 3 figure by 1/1.1^3 ie multiply by 0.751.