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Z Co is evaluating a project which will generate cash flows of $2,600 each year in years four to eight. (The first amount will be received in four years from now.)
Sir here i know we are going to calc discount rate of 1-8 years and then deduct the 4 years first from that to obtain the rest 4 years, but in the answer they’re deducting the discount rate of 1-3 years from 1-8
1-8 discount factor at 14% 4.639
1-3 discount factor 2.322
2.317 answer and multiply that with 26002.317*2.317=6024 also sir one more thing I don’t understand as first amount is received in the first 4 years why aren’t we adding that value to find the total present value
Question asks what is the present value of project cash flows at discount rate 14%?
Could you please explain me this sir?
Subtracting the 3 year annuity factor from the 8 year annuity factor leaves you will the total for the years 4 to 8.
I explain this in my free lectures and you cannot expect me to type out my lectures again here.
Sir i am aware of this subtraction but i just don’t understand because it says first amount will be received in 4th year and also it says cash flows will be each year from 4 to 8, but if we just deduct 3 years it will leave us with 5 years? I have exam by 27th otherwise i would re watch your lectures where I’ve confusion sir and I didn’t get why aren’t we adding that amount being received in first year? As that is a cash flow as well?
What is the present value of $2000 per annum, receivable for a total of 8years time with the first receipt being in 3 years time, with interest at 5% per annum? To the nearest (000’s)
This question sir I’ve just attempted the tests of open tution, sir in this answer it’s done like this
Because first receipt is in 3 years time and the 8 receipt will be in 10 years time, I don’t get this as well, if we are doing it like this, then in my previous question since first amount is received in 4 yrs time, 2nd will be in 5 and goes till 11 years to get the 8 because it has total cash flows till 8 years
If we do like that calculate 11 years annuity and then 3 years to get 8 years, that is also incorrect sir, please could you explain me what actually we are doing in both of these questions, i really would rewatch your lecture but that will just panic me further because my exam is by 27 I don’t have much time left
Receiving from 4 to 8 is 5 years of receipts!!!!!
If there are 8 years of receipts and the first receipt is in 3 years time, then the last receipt will be in 10 years time.
Count them up on your fingers 🙂
At first did think about that 4-8 years would be 5 years of receipt but i just confused myself further, really sorry for bothering sir! Thankyou for clearing the confusion
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