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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Single period capital rationing in year 3
If a company has following cash inflows
Year 1 10,000
Year 2 10,000
Year 3 10,000
Year 4 25,000
And company requires investment outflows restricted to £60,000 in year 3 and has capital rationing problem in year 3. Assume return rate of 10% from all activities.
How should we approach this problem?
Should we discount all cashflows to year 0 or should we consider all cashflows at year 3 and therefore compound year 1 and 2 cash inflows.
You do it exactly as normal – calculate the NPV (i.e. at time 0) and then calculate the NPV per $ required at time 3. It does not matter that the rationing is at time 3.