Value in use & unwinding of discount

Llindalong16y ago

Hi Werty

Thanks for your help during the chat. I still have two more questions.

One relates to q Nettle.The directors have estimated that the CF for the 1st y/e would be 19m and the 2nd 26m. They feel there would be steady growth in CF of 2% thereafter eliminating the effect of inflation. (Assume inflation of 2%, a pre-tax discount rate of 12% and pre-tax discount rate adjusted to reflect growth in CF and inflation of 8%)

How do we calculate the value in use?

The second is about Consol CF. In the pilot paper q1, in reaching at the interest paid, unwinding of discount on purchase is deducted, why?

Thank you so much.

MikeLittleTutor16y ago#1

Hi, second one first! Unwound discount will be included in "Interest paid" in the I/S, but of course, it's not paid - it's a book adjustment. So calcn of Int paid is "B/fwd, + I/S charge - C/fwd" that gives the figure which would normally be int paid. However, because an unwinding of a discount is not CASH, we need to deduct it from our (above) calculated figure

Now, viu. Is it not ( 19 * 1/1.12 ) + ( 26 * 1/(1.08*1.08) + ( 1.02 * 26 *1/1.08*1.08*1.08 ) and extended for 2 more years?

Llindalong16y ago#2

Thanks!
For the viu, the answer seems to be 19/1.12+26/(1.12*1.12)+(26*1.02*1.02)/(0.08*1.12*1.12)
But I dunno why it's this way...

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