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In washi co when the investment was to take place 1 year from now, the initial investment was in Y0, but in Hathaway, the project is to take place 1 year from now and they put initial investment in Y1 and discounted it, why?
also for the part a) iii) of the question can you explain why we do 0.7 x 5.6 and not 7.02?
The requirement (c)(ii) specifically says that you are to base the end of the first year as time 0.
7.02 is ignoring the possibility of a recession and is ignoring the application not being approved.
For the part of the question asking for the expected value we need to take account of those possibilities.
Okay thank you sir. I also have a generic doubt, if the question says cash flows in Y5 increase by 2% but stay at this rate forever, will i discount Y5 cash flow using the Y5 PV factor and then treat it as a perpetuity from Y6 onwards?
You can get the same answer in several ways, but the way you state is fine.