Q2(a) Sep/Dec 2016

This topic has 3 replies, 2 voices, and was last updated 7 years ago by John Moffat.

Viewing 4 posts - 1 through 4 (of 4 total)

Author

Posts
March 2, 2019 at 5:39 am #507079
jinjiak
Member
- Topics: 7
- Replies: 5
The answers to the ‘duration’ question is:
The result indicates that it will take approximately 2.78 years to RECOVER HALF the present value of the project.

My question:
What’s the meaning of ‘Recover half’ in the answer?

Thanks
March 2, 2019 at 9:16 am #507120
John Moffat
Keymaster
- Topics: 57
- Replies: 54859
It means to get half of the total PV of the project.

In fact it is only approximate, but the examiner does expect you to write it if there is a written part of a question on it.
March 3, 2019 at 2:25 am #507232
jinjiak
Member
- Topics: 7
- Replies: 5
my understanding is duration is to measure the average time to recover the present value of the project.

But right now, the ans shows: 2.78 years to RECOVER HALF the present value of the project.

I don’t know why RECOVER HALF is used.
I think it should be: 2.78 years to RECOVER the present value of the project, without the need to use HALF.

Or, like your explanation, it’s just approximate, so Recover half and Recover can both be used?

Thanks
March 3, 2019 at 9:25 am #507262
John Moffat
Keymaster
- Topics: 57
- Replies: 54859
The present value of the project is the total PV of all the future inflows. So it takes 4 years to recover the whole of the PV. It takes 2.78 years to recover approximately half of it.
Author

Posts

Viewing 4 posts - 1 through 4 (of 4 total)

You must be logged in to reply to this topic.