• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
Free ACCA & CIMA online courses from OpenTuition

Free ACCA & CIMA online courses from OpenTuition

Free Notes, Lectures, Tests and Forums for ACCA and CIMA exams

  • ACCA
  • CIMA
  • FIA
  • OBU
  • Books
  • Forums
  • Search
  • Register
  • Login
  • ACCA Forums
  • Ask ACCA Tutor
  • CIMA Forums
  • Ask CIMA Tutor
  • FIA
  • OBU
  • Buy/Sell Books
  • All Forums
  • Latest Topics

Specially for OpenTuition students: 20% off BPP Books for ACCA & CIMA exams – Get your BPP Discount Code >>

NPV Examiner’s Report

Forums › FIA Forums › FFM Foundations in Financial Management Forums › NPV Examiner’s Report

  • This topic has 3 replies, 2 voices, and was last updated 1 year ago by mrjonbain.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • November 17, 2021 at 4:21 pm #640917
    april202
    Member
    • Topics: 2
    • Replies: 2
    • ☆

    Hi all! can somebody please explain what I am missing here?

    ·A company is considering two mutually exclusive projects. The cash flows for each project are as follows:

    Project X Year0 $ (15,000) Year1 $8,000 Year2 $8,000 Year3 $8,000
    Project Y Year0 $ (15,000) Year 3 $26,000
    The company evaluates projects using the net present value method and uses a cost of capital of 10%.
    Which project(s) should the company undertake?
    A Both projects
    B Project X only
    C Project Y only
    D Neither project

    So, I thought the correct answer was C. But instead of using the NPV factor for 10% in both projects. They use the NPV factor for one and the annuity factor for the other (I think). So this is the answer that they give:

    The candidate therefore needs to
    calculate the net present value of both projects:
    NPV of X = ($15,000) + 2.487 x $8,000 = $4,896
    NPV of Y = ($15,000) + 0.751 x $26,000 = $4,526
    Note that in doing the calculation, I have used annuity factors, which are a valuable tool when
    answering questions under exam time pressure, and yet this is a technique few candidates
    generally use in Section B questions.

    ¿……?

    November 18, 2021 at 7:33 am #640931
    mrjonbain
    Moderator
    • Topics: 2
    • Replies: 1600
    • ☆☆☆☆☆

    Can I confirm answer B is the one given?If they were not mutually exclusive and in the absence of any other constraint, both projects would be chosen as both have positive NPV. The examiner is able to use annuity in this case because equal amount of 8000 is inflow every year of project X. If unequal amounts inflowed each year it would not be possible to use annuity factor. Hope this helps.

    November 21, 2021 at 6:48 pm #641271
    april202
    Member
    • Topics: 2
    • Replies: 2
    • ☆

    Hi! Thank you for your response.
    Yes, the correct answer is B (project X only).

    November 22, 2021 at 2:34 am #641274
    mrjonbain
    Moderator
    • Topics: 2
    • Replies: 1600
    • ☆☆☆☆☆

    You are welcome.

  • Author
    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • You must be logged in to reply to this topic.
Log In

Primary Sidebar

ACCA News:

 

ACCA My Exam Performance for non-variant Applied Skills exams is available NOW

NEW! Download the ACCA Pass Guide

FREE Verifiable CPD for ACCA Members

ACCA mock exams and debrief videos

ACCA Options:  “Read the Mind of the Marker” articles

Subscribe to ACCA’s Student Accountant Direct

Donate

If you have benefited from OpenTuition please donate.

ACCA CBE 2023 Exams

Instant Poll * How was your exam, and what was the result?

BT CBE exam was.. | MA CBE exam was..
FA CBE exam was.. | LW CBE exam was..

Specially for OpenTuition students

20% off BPP Books

Get BPP Discount Code

Latest comments

  • kamo7293 on Investment Appraisal – NPV, IRR – ACCA Management Accounting (MA)
  • John Moffat on Investment Appraisal – NPV, IRR – ACCA Management Accounting (MA)
  • Hi?n on Investment Appraisal – NPV, IRR – ACCA Management Accounting (MA)
  • Ken Garrett on ACCA AB Chapter 19 – Macroeconomics – Questions
  • Ken Garrett on ACCA AB Chapter 19 – Macroeconomics – Questions

Copyright © 2023 · Support · Contact · Advertising · OpenLicense · About · Sitemap · Comments · Log in


We use cookies to show you relevant advertising, find out more: Privacy Policy · Cookie Policy