Pev Help

Shab

can anyone tell me what can come in both section of pev apart from varainces and ratios that will be very helpfull and a brief on task 2.3 june 2009 paper discount factor

Rinske

I can't tell you what will be in the exam, but the discount factor as the June 2009 exam is often tested as well.

As for the discount factor in 2.3:

If in year 0 the machine has been bought for 500,000 the discount factor is given of 1, so the net present value of that year is 500,000 time 1.
In year 1 the machine costs 40,000 to run with a discount factor of 0.952 meaning the net present value of this one is 0.952 times 40,000 is 38,080.
In year 2 the machine costs 40,000 to run with a discount factor of 0.907, meaning the NPV of this one is 0.907 times 40,000 is 36,280.

The next two years are the same, except that in year 5 it gets sold for 200,000, so the actual amount is (160,000) times the discount factor.

The total Net present value then comes to 500,000 + 38,080 + 36,280 + 34,560 + 32,920 + (125,440) = 516,400

All this does is calculating the current value of the money. If this money was invested as capital instead of in this machine, this is the value needed at this year (0) to be invested to have the amount needed in the future year.

As for the machine lease:

If it was leased, the company would pay 125,000 every year in advance. Using the same discount factors, this means you pay 125,000 in year 0, year 1, year 2, year 3 and year 4.

The total than comes to 568,250

I'm guessing this is what you are asking and I hope this makes sense.

SandyHood

I think target costing is something that is probably a little more likely than life cycle costing

Spurs

Is anyone using the Kaplan Financial study text 2009/2010 edition for PEV for Dec 2009 exam? I've just read some AAT posts and I'm really concerned because Kaplan have no study text on NPV, discounted lifescycle costing or target costing.......

Rinske

SandyHood wrote: »

I think target costing is something that is probably a little more likely than life cycle costing

Hey Sandy,

I'm now convinced you do this just to make me nervous! I was so happy to see the discounted cash flow bit in the past exams, but what kind of target costing calculations could there be in it?

donnaalwill

Spurs wrote: »

Is anyone using the Kaplan Financial study text 2009/2010 edition for PEV for Dec 2009 exam? I've just read some AAT posts and I'm really concerned because Kaplan have no study text on NPV, discounted lifescycle costing or target costing.......

Do you have the ECR textbook? There is a chapter on Investment Appraisal and NPV and costs were covered a bit in there, there is only a small part in the Kaplan PEV/PCR book i can see on target costing which is a definition on page 222. There is a small target cost calculation in the June 08 paper, question 2.3.

SandyHood

Rinske
Look at the past PEV and MAC questions
If you know the market price for a new product is £12.00
and the board of the company require a £4.00 profit
Then the target cost is £8.00

If the engineering department tell you that the design will cost £9.00 per unit
What do you do?
Apply Value Analysis
look at the fetures of the original design
~ keep the ones that add value
~ take out features that add cost without adding value
Get the engineering department to costy the product based on the revised design
Keep your fingers crossed that it comes in at under £8 per unit

Put the product into production

Spurs

Kaplan Issue

Many thanks for that - the is my second attempt at PEV, I used Osborne books last time and found their stdy books very confusing. I've got on well with Kaplan in the past so I thought I'd buy it for PEV but I'm very unhappy they aren't covering all exam content!

I have the past 10 exams to practice with and it seems to make sense.

Thanks a lot.

Claire

Rinske

Thanks Sandy.

I clearly just worked myself up a panic and thought you meant the calculation of how much you could save where somehow and confused myself!

Spurs

Please can someone explain where the £(160,000) comes from in Year 5 ? I can see its sold for £200k but don't understand the calculations in year 5.

Thanks

Terdoo

Re pev 2009

The 2000000/5 year 40000 = therefore 160000 is you residual value for the 5th year
go through the question again and read carefully.

hope this help a bit.

Spurs

Got it, thanks a lot - i think I need a break for a while then start again.