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Dear Sir,
I am unable to get to the correct result for the NPV calculation on the mock exam Section B Q1a – Able Ltd is considering a new project… Calculate the NPA.
I start with the 300,000 and calculate the NPV using a present value factor of 1, then continue to use the present value factor equivalent to a 10% cost of capital for $30,000 per year.
The correct answer is 53,610 but I am way off this. Please help.
Thank you
The net inflow is 90,000 per year for 5 years (120,000 – 30,000).
You discount this using the annuity discount factor for 5 years at 10%.
In addition there is 20,000 receivable in 5 years time. You discount this using the normal 5 year discount factor at 10%.I assume that you have watched my free lectures on investment appraisal?
(Our free lectures are a complete course for Paper F2 and cover everything needed to be able to pass the exam well)
Good day,
However if I use a discount factor for every year ( from present value table, not annuity), the NPV is 53520. (not 53610)
In examples we did it like this, I understand that we can use Annuity table, because it’s the same ammount every year, but why the result is a little bit different.
thank you.I have already found the answer,it’s because of decimals in the table. thank you.
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