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Hi, Sir
I’m wondering how the answers will be 53,610 Q1-A.
My Answer is 53,520. Could you please help me to bring the answer, 53,610??Cost (300,000)
Discounted Revenue
Y1 120,000*0.909=109,080
Y2 120,000*0.826=99,120
Y3 120,000*0.751=90,120
Y4 120,000*0.683=81,960
Y5 120,000*0.621=74,520
Y5 20,000*0.621=12,420
Sub-Total: 467,220Incremental Cost
Y1 30,000*0.909=(27,270)
Y2 30,000*0.826=(24,780)
Y3 30,000*0.751=(22,530)
Y4 30,000*0.683=(20,490)
Y5 30,000*0.621=(18,630)
Sub-Total:(113,700)NPV=(300,000)+467,220+(113,700)=53,520
You have discounted each year individually whereas it is quicker to use annuity factors.
However either approach is fine. The difference is simply due to the fact that the discount factors are rounded to three decimal places and is just a rounding difference.
Rounding differences are irrelevant in the exam (and to avoid it being a problem the question in the exam would ask you to give the answer to the nearest thousand). (Rounding differences are obviously completely irrelevant in the real life 🙂 )
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