P5 JUNE 12

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August 19, 2015 at 12:16 pm #267758
310zcx
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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
August 19, 2015 at 12:35 pm #267761
Ken Garrett
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Either way is acceptable.
August 19, 2015 at 12:41 pm #267762
310zcx
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Thanks.
November 10, 2015 at 2:35 am #281369
learner93
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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?
November 10, 2015 at 9:12 am #281433
Ken Garrett
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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.
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