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Good morning,
I tend to get confused with the timing on cash flows. In this question I thought that given the disposal happens “at the end of year 3” the proceeds should be recorded on year 4 since I understood this is the logic to apply when applying discounting, however the proceeds were recorded in year 3.
I am getting confused on the logic to apply when discerning the timing of the cash flow, could somebody give me a hand on this one?
Thanks!
0, 1, 2 etc are points in time 1 year apart.
Time 0 is the start of the first year.
Time 1 is the end of the first year, start of the second year.
Time 2 is the end of the second year, start of the third year,
and so on.So if an asset is sold at the end of the third year, then for the discounting it is time 3 – 3 years from now.
I do suggest that you watch my free lectures on relevant cash flows for investment appraisal. (The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well).
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