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Hi John
Why is the before-tax weighted avg cost of capital 12% used for EAC and after-tax 7% used for NPV.Hello
I am confused about the inflation of sales price
Have they doubled it in the second year and there after?The inflation is per annum, and so at time 2 there is 2 years inflation. At time 3 there is 3 years inflation, and so on.
Thus is always the case !Hello,
In part (b), when calculating the equivalent annual costs of the machines, why is the present value of the cash flows divided by the cumulative discount factors rather than just by the number of years for each machine?It is because of the timing of the flows.
You must watch my free lecture on replacement, because the reasoning for how we calculate the EAC is explained in great detail in the lecture (and I cannot possibly type out the whole lecture here 🙂 )Our free lectures are a complete course for Paper F9 and cover everything needed to be able to pass the exam well.
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