AFMRomage june 2000

If you want me to answer then you must ask in the Ask the ACCA Tutor Forum - this forum is for students to help each other. The discount factor for 1 to infinity is 1/r where r is the rate of interest. So for 6 to infinity, it is 1 to infinity less the discount factor for 1 to 5 (which is the 5 year annuity factor). For 1 to 15, the have calculated the PV of 1 to 5. For the remainder (6 to 15) you take the 15 year annuity factor less the 5 year annuity factor (because from 6 to 15 it is a constant cash flow). No - there is no lecture on swaps at the moment.

If you want me to answer then you must ask in the Ask the ACCA Tutor Forum - this forum is for students to help each other. The discount factor for 1 to infinity is 1/r where r is the rate of interest. So for 6 to infinity, it is 1 to infinity less the discount factor for 1 to 5 (which is the 5 year annuity factor). For 1 to 15, the have calculated the PV of 1 to 5. For the remainder (6 to 15) you take the 15 year annuity factor less the 5 year annuity factor (because from 6 to 15 it is a constant cash flow). No - there is no lecture on swaps at the moment.

Sir, regarding manufacturing division 1) Can I calculate PV from year 6 to infinity in the following way: 39,8/0,1 x 0,621(10% discount factor for 5 years) ? 2) Can I calculate PV from Years 6-15 in the following way: 39,8x6,145(10% annuity factor for 10 years)x0,621(10% discount factor for 5 years) ? The reason why I am asking is because my result is a very very little bit slightly different from the examiner so I want to confirm that my approach is also correct...

One more question: What is the reason to measure the value of divisions during the period of 15 years? Does it make sence to compare market capitalisation of the company (which is assumed represent infinitely discounted cash flows) with a 15 years value of separate divisions? As for me theoretically it does not make sense. However in practise it may make sense to see what will happen in the foreseebale future say 15 years (managers do not have infinite life))

@petrochina said: Sir, regarding manufacturing division 1) Can I calculate PV from year 6 to infinity in the following way: 39,8/0,1 x 0,621(10% discount factor for 5 years) ? 2) Can I calculate PV from Years 6-15 in the following way: 39,8x6,145(10% annuity factor for 10 years)x0,621(10% discount factor for 5 years) ? The reason why I am asking is because my result is a very very little bit slightly different from the examiner so I want to confirm that my approach is also correct...

Sir, is it correct? Please answer at least this part.