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John Moffat.
John Moffat.-
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rialakhani
- Topics: 20
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Hi,
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?
rialakhani
- Topics: 20
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also for the part a) iii) of the question can you explain why we do 0.7 x 5.6 and not 7.02?
John Moffat
- Topics: 57
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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.
rialakhani
- Topics: 20
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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?
John Moffat
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You can get the same answer in several ways, but the way you state is fine.
rialakhani
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