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Time value of money

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Time value of money

  • This topic has 3 replies, 2 voices, and was last updated 1 year ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
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  • July 21, 2021 at 4:34 am #628956
    Sourav9271
    Participant
    • Topics: 166
    • Replies: 118
    • ☆☆☆

    Sir,
    The question asked to quote minimum contract price.
    I got till 125,696
    But I didn’t quite understand why further discounting .

    Wasn’t DCF already incorporated whilst reaching at 125,696.

    July 21, 2021 at 10:48 am #628987
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51552
    • ☆☆☆☆☆

    Please do not post links like this, it is illegal for us because of copyright laws.

    For the minimum contract price, the NPV must be zero. Therefore the PV of the receipt in 2 years time must be 125,696. That to be the PV of the contract price, the amount itself must be 125,696 divided by the two year discount factor as explained in the answer.

    July 21, 2021 at 11:57 am #628998
    Sourav9271
    Participant
    • Topics: 166
    • Replies: 118
    • ☆☆☆

    Sorry sir I won’t attach any links ..

    However why does the amount itself be discounted..

    Wasn’t 125696 reached as a result of discounting.?

    July 21, 2021 at 3:35 pm #629038
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51552
    • ☆☆☆☆☆

    Yes it was reached as a result of discounting – it is the PV of other flows.

    For the NPV to be zero, the PV of the receipt must also be equal to 125,696 (not the receipt itself, but the PV of the receipt).

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