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I am just wondering what the difference is between the method used for question 126 and for 155. I don’t understand why in 155 the trade in value of the car is only include for year 3? Question 126 is similar and I have done out 155 based on that
NPV 1 : 1500 – (11250 – 1000-500) * .909 = 6137.25
NPV 2: 1500 – (9000 – 1400 – 625) * .826=9238.65
NPV 3: 1500 – (6200 – 1960 – 875) * .751=2527
From there I worked out the EAC and option 3 being the lowest
But this is a different figure from BPP. I just don’t understand the method used in BPP
Question 126 only lasts a maximum of 2 years, and there are no maintenance costs in the first year.
In question 155, there are costs each year and so for 2 year replacement (for example) you need to discount the flows in the first year for 1 year, and the flows in the second year for 2 years.
I really do suggest that you watch my free lectures on this, where I explain the approach with examples.
The lectures are a complete free course for paper FM and cover everything needed to be able to pass the exam well.
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