P5 JUNE 12 — OpenTuition Forums

3310zcx10y ago

HI SIR 1.I have question in paper june12. For Q1 part (b), when calculate the MIRR, CAN I use the equation of MIRR=(pv of return phrase/ pv of initial investment)*(1+discount factor)-1. in the answer of calculating the NPV, we know the pv of return phrase and pv of initial investment and discount factor. However, the answer is different with the examiner's method. which one is correct or both of them are correct? thanks sir

kengarrettTutor10y ago#1

Either way is acceptable.

3310zcx10y ago#2

Thanks.

Llearner9310y ago#3

Sir does this means that it is acceptable to assume that the fcf is reinvested at cost of capital i.e 12.5% instead of 4.5% as calculated by the examiner? And does this mean we can use pv at yr 0 to calculate the pv of return phase and pv of investment phase as per the formula given in exam?

kengarrettTutor10y ago#4

Yes. I don't think there is a consensus. Using the formula approach just uses the cost of capital. Using the examiner's way uses the deposit rate also. The question is why are receipts simply deposited when they could be probably invested at the cost of capital.