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Hi Sir,
I do not understand why to calculate Macaulay Duration, we only focus on the return phase on not on the investment phase? How come we cannot take the pv of all the cashflow * no of years/PV of all the cashflow, but only focus on cashflow from return phase.
Please advise.
Thanks!
Regards,
Joanna.But if you look at the formula we look at the present values of both the return phase and the investment phase 🙂
Hi Sir,
Yeah, but from an example in a qns on Macaulay Duration on the project to build a distillation facility at the pembroke plant, the answer given didn’t include the PV of investment phase. They calculated the PV of recovery phase * no of years / PV of recovery phase. Hence, I am confused now.
I need to see the question to be able to answer you properly.
If it is a past exam question or is in the BPP Revision Kit then I will be able to find it.
(If it is a past exam question then please give me the date of the exam; if it is in the current edition of the BPP Revision Kit then please give me the name of the question)I am sorry, but my first answer was rubbish (for some reason I was thinking about the MIRR – it must be too early in the morning for me 🙂 )
The question did not specifically ask for the duration, although it was an obvious thing to mention because of the mention in the question of the conventional payback period.
I would have taken into account the investment phase as well. The examiner didn’t in his answer (but the examiner has changed twice since this question was asked) and he did refer to it as ‘duration of recover phase’ which I suppose is fair enough.
Hi Sir,
Just to confirm for duration, we will need to account all the cashflows PV of cashflows (recovery phase and investment phase) * no of years/PV of all cashflows? However if qns only specify recovery phase then we will focus just on the recovery phase?
Thanks for your help 🙂
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