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Hi
Re Okan Co
1. Calculation working capital is not presented incrementally, it is 15% of the increase in sales revenue. The solution uses figures based on 15% of the increase in sales but does not deduct the working capital already invested.
I used incremental figures, is this acceptable?
2. The project is due to start in 6 months time, with an annual inflation rate of 10% on sales and 4% on costs. I took 50% of the inflation rate (5%) and applied it to the year 1 figures, however the solution uses the annual rates.
Do we always gross up the year one figures given in the scenario with the inflation rate?
3. In the professional exam, does the own figure rule apply, if so how much does it apply?
For example, making a mistake in an NPV calc which skews the NPV significantly from a positive to a negative outcome and using that figure in an APV calculation, which effectively results in a substantial difference in the APV figure. Additionally, using the incorrect figures in the discussion parts of the question.
Are we losing all the mark because of minor mistakes made earlier?
Thanks
1. It is incremental because it is not 15% of the sales revenue but is 15% of the increase in the sales revenue. Had it been 15% of the sales revenue that we would have needed to subtract the WC already invested. The examiners answer is correct and doing different would have lost marks.
2. The project starts in 6 months time and this is time 0. The costs and revenue given in the question are given as being the amounts in 6 months time and so inflation is per year from then on.
3. The own figure rules applies in all ACCA exams. You do not lose marks twice for the same mistake (whether the mistake was minor or major).
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