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If Mr x requires 243,000 pounds to invest in a project which is expected to generate a net cash flow of 50,000 pounds each month for 12months .cost of capital is 12%per annum.
Compute NPV.
When I convert 50,000 pounds to an annual amount, I get a different NPV as to when I convert the cost of capital to a monthly rate.
Which method is appropriate use?
The second method. You calculate the monthly rate which is 0.9489% and would then use the formula given in the exam to calculate the annuity factor with r as 0.009489 and n as 12.
However Paper FM does not ever expect monthly discounting. This could just be asked in Paper MA (was F2) but not in Paper FM.
(Why are you attempting questions for which you do not have an answer? You should be using a Revision Kit from one of the ACCA approved publishers. They have answers and explanations 🙂 )
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