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Hi John
Pass paper March/June 2019
Question 32 for section b how do they get the 13643 for year 1 that line I do not understand for the real cash flows before taxTo get the ‘real’ cash flows we deflate the nominal cash flows by the general rate of inflation (which is 3.7%), because it is the general rate of inflation that affects the cost of capital.
So in year 1, 14,148 / 1.037 = 13,643
In year 2, 24,097 / (1.037^2) = 22,408and so on.
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