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The above article says that I can use the following formulas:
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=3.15*1.04^2=3.15*POWER(1.04,2)
There are other methods of calculating these figures and any approach which gives the correct figures will be given credit in the exam.
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The above formulas give the answer : 3.40704
Here’s the example says on the web pageYear 2: 3.15 x 1.04(superscript)2 = $3.41 per unit
Year 2: 3.41 x 350,000 = $1,193,500
Now, if I use the formula, I’m going to get something different, because it’s not rounded
if I enter:
=(3.15*1.04^2)*350000
Then I get 1,192,464.00The values $1,193,500, and 1,192,464.00 are different by 1,036.00
So, say if I was to do an entire NPV investment appraisal question, all these differences would add up even more.
So my question is, when inflating the price, do I have to round to two significant figures or not?
I started off using formulas, but now I’ve stopped, because I never know what round and how?
Can you please provide some clarity about that?
In section C questions it is not the final answer that gets the marks – it is the workings that get the marks whether you use the functions in the spreadsheet or not (but it makes more sense to use the functions in the spreadsheet because is saves time, and the marker is able to see what functions you have used.
Rounding (or not rounding) does not affect the marks, unless the question specifically says you are to round (for example, it asks for an answer to the nearest thousand).
Otherwise it is irrelevant. (And a difference of $1,000 in an answer of $1,000,000 is nothing – it is irrelevant in the exam just as it would be irrelevant in real life 🙂 )
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