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Ask the Tutor ACCA FM

Present value of future cash flows

SSyed6y ago
When calculating the present value of future cash flows( hundred years) from an investment for example WACC of 15.2% Do we divide it by the market value of a share to calculate the net present value of future dividends from a stock?
John MoffatJohn MoffatTutor6y ago#1
The MV per share is equal to the present value of the future dividends. However this is not relevant when calculating the NPV of a project because the WACC is the overall cost of borrowing from both equity and from debt. If you are asked for the PV for future cash flows discounting at 15.2% then you need to calculate the discount factor using the formula (because the tables do not include 100 years or an interest rate of 15.2%). However this would be very unusual for Paper FM - almost always questions are on figures that are in the tables. Using the formula is examined in Paper MA. I do suggest that you watch my free lectures on all of this. The lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.
SSyed6y ago#2
Thankyou sir
John MoffatJohn MoffatTutor6y ago#3
You are welcome :-)
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