Past exam papers

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November 7, 2011 at 6:10 pm #50371
Pudge
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Hi,
I was going through past exam papers and had a query regarding Dec 06 Hendil part b – calculate the NPV
I calculated the variable cost prices by inflating the prices given first before using them in the calculation so I had:
Yr 1 (30*1.04) = 31.2 the answer (31.2)
Yr 2 (28*1.04) = 29.12 the answer (30.3)
Yr 3 (27*1.04) = 28.08 the answer (30.4)
Yr 4 (27*1.04) = 28.08 the answer (31.6)
how were these arrived at?
November 19, 2011 at 10:01 pm #89419
John Moffat
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The reason is that if the flow is in year 2 (for example) then you should inflate for 2 years. You have only inflated for 1 year.
So….if you inflate for 2 years you get 28*1.04*1.04 = 30.3 (and so on for the other years – for 3 years multiply by 1.04 three times. etc..)
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