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Sir what’s the diffirence between calculating/discounting cash flows for for example in 5 years time.
Can I use formula, e.g: 20000 per annum discount for 5 years at 8%
100000*1/1.08“5?
There was some formula like this, isn’t it??I’m asking because there was difference in some exercises while calculating each year worth and adding them up.
Thank you.
The difference is probably because the cumulative discount factor (if given) is itself not as accurate as a calculator or, (more likely), where individual years’ factors are given these tend to be accurate only to 2 decimal spaces
Are the differences that you are finding minimal or substantial?
And are the cash flows every year or just one flow in year 5?
It’s given as annual cash flow amount. I’m multiplying it by 5 fot example for 5 years and discounting…smth wrong.
The difference is substantial.Yes, don’t multiply by five!
Instead, multiply the annual amount by the cumulative discount factor.
If cumulative discount factor is not given, multiply the annual flow by (say) 1/1.08 for the first year. Then by 1/1.08, 1/1.08 for the second year. Then 1/1.08, 1/1.08, 1/1.08 for the third year and so on
But you can’t multiply the flow by the number of years!
Got it dear sir. Thank you.?
I’m sooo worried about exam…
I revised mostly multiple choice questions and very good with them but done little on Section B questions.
What’s your advice?:((
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