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In DEC12, ARBORE CO
1. In the part (a)(i), in the answer sheet, it states that they need to reduce annual cash flow to 897,110. However 4,717,000 is already the NPV of PDur05, so why do they actually divide the 4,717,000 with (7.191 x 1.11^03) ????IN DEC 14 RIVIERE CO
1. In the section (b) in the answer sheet, in the calculation of value at risk, I’m not sure why they have used the square root of 0.5In FURLION CO (MAR/JUN 16)
1. In part (a), Pa is the present value of all the expected cash flow from the project. I understood of getting 10.68 however should we also take into consideration of negative 1.01 million ? because currently it is negative 1.01 and then additional revenue of 10.68(after being discounted) would result into 9.67million.
In my point of view, 1.01 should be deducted from 10.68 since Pa is the present value of all the cash flow and 1.01 is the negative present value.2. Revision kit states that Pa= present value of all cash flow except initial investment. Does this mean that all those cost involved in the project is not included and all the cash flow resulting from the project will be considered ???
In future you must ask questions about separate exam questions as separate posts. This is because we want our answers to be of help to everyone – we do not give private tuition.
1. Because we need to calculate the annual cash flow that gives an NPV of 4,717,000. Therefore we divide by the relevant annuity factor, and the 3 year normal present value factor because the annual cash flows only start at time 4, which is 3 years later than a standard annuity.
2. This is explained in my free lecture on VaR. I get the impression that you are not bothering watching the lectures!
3. The value of the project is the PV of the future cash flows. The NPV is the difference between the amount needed to invest and the value of the project.
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