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Hi Team,
Please could you clarify the markscheme for the NPV calculation? I dont understand why working capital is added back in year 1.
In the scenario it says working capital will be recovered at the end of the project, so should it not be added back in year 3? I dont understand why its appearing in year 1.
Here is the exam paper for your reference: https://www.acowtancy.com/exams/acca-apm/cbe-question/feb-2025-genuine-3b-t-1-1?fsid=3131a74f30cbddf932e4e446ec22beca2800462d
Hope to get some clarifications around this, thanks a lot!
Sorry just to add I keep getting 7.60 for my final answer rather than 6.95
I imagine this throws off my MIRR answer of 20%…
genuinely dont understand what im doing wrong 🙁
The 0.64 working capital recouped figure has been typed in the wrong column. However, the free cash flows are correct (0.64 types in year 1 is not in the 12.56, but is included in year 3).
I don’t know why you get an answer of 7.6. You must be doing something different to the model answer. Compare carefully.
Thank you, my cash flows align with the markscheme after some time I realised it was in the wrong column, thanks for confirming.
I learnt from a youtube video (steve willis) that rather than typing out each discount factor you could do this formula:
=NPV(cost of capital, cell range of free cash flows*)
*I think this excludes year 0 with the initial investment
By following this I get =32.60
Deduct the initial investment of 25 I land on 7.60
Are you able to help me figure out what ive done wrong please?
I am at the point where I should probably stop sweating these 2 marks as Im got most of the question right but if you could potentially help me out i’d really appreciate it! Spent so long looking at it and feeling defeated!
Sorry another question, could i confirm that if the deposit reinvestment rate is not mentioned in the question you can assume its the same rate as the cost of capital? (I asked AI)
32.60 is correct, but the year 0 spend is 25 + 0.64 = 25.64
32.6 – 25.64 = 6.96 (the published answer bar rounding. You seem to have forgotten the initial working capital.
As for you last query, you have to assume the reinvestment rate is the same as the discount rate if a rate is not explicitly given.
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