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NPV-DEC 2008 Q3 b

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › NPV-DEC 2008 Q3 b

  • This topic has 4 replies, 2 voices, and was last updated 9 years ago by John Moffat.
Viewing 5 posts - 1 through 5 (of 5 total)
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  • November 26, 2015 at 8:06 am #285357
    yushanshan
    Member
    • Topics: 84
    • Replies: 70
    • ☆☆

    The answer says ” The investment is financially acceptable, since the NPV>0 . The investment might become financially unacceptable, however however , if the assumptions underlying the forecast financial data were reconsided, for example, the sales forecast appears to assume constant annual demand, which is unlikely in reality. ”
    I just wonder the meaning “… were reconsider” in the question. Would you mind explaning to me in detail:)

    November 26, 2015 at 8:24 am #285365
    yushanshan
    Member
    • Topics: 84
    • Replies: 70
    • ☆☆

    What I am confused is when we occur the unexpected condition like the example mentioned , what result should we do? In my opinion, we should do like this “The investment is financially acceptable, since the NPV is positive . However, the investment might become financially unacceptable, because the assumptions underlying the forecast financial data were reconsided( the sales forecast appears to assume constant annual demand, which is unlikely in reality. )
    But I am not sure.

    November 26, 2015 at 10:03 am #285410
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54696
    • ☆☆☆☆☆

    Always when we make a decision using NPV, we are making assumptions about what the future cash flows will be.

    What you have typed is the same as what the examiner wrote and is fine 🙂

    November 26, 2015 at 10:28 am #285419
    yushanshan
    Member
    • Topics: 84
    • Replies: 70
    • ☆☆

    Thanks , in general , when I occur NPV>0, I will always think it is financially acceptable. Obviously, the solution examiner gave is perfect:)

    November 26, 2015 at 10:30 am #285421
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54696
    • ☆☆☆☆☆

    Yes – it is financially acceptable but always state that it is subject to all the estimates of cash flows being correct.

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