Hello Sir,
I have a question regarding timing of cash flow.
Imagine, now is the beginning of November 2018. We are considering a-3-year period investment project. At the beginning of November, we will make initial investment layout amounting to $8,000. And future cash flows are as follows: $xx, $yy, $zz for three years accordingly. Timescale of this project will be:
Period Cash flow
0 ($8,000)
1 $xx
2 $yy
3 $zz
My question is: here, period 1 (and so subsequent periods) covers period Nov/2018-Dec/2018 or Nov/2018-Oct/2019? How will it be in real practice? Is there any strict rule to stick to or is it up to us how to decide?
Thank you very much, Sir
Ask the Tutor ACCA MA
Timing of cash flow
8y ago#1Period 1 covers the period from Nov 18 to Oct 19. We assume for discounting that the flows occur at the ends of periods and therefore the flow is in 1 years time and needs discounting for 1 year.
December does not come into it at all - companies work on accounting years (which can be whatever year they want). They do not work on calendar years.
Thank you very much for your help, Sir.
8y ago#3You are welcome :-)
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