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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 $zzMy 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
Period 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.
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