Discounted Cash Flows

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:30AM in AAT student discussion
On practice papers like Chem-Pro Ltd in Osborne book, question 2.4 mentions discount rate of 10%<BR><BR>In the real exam, does anyone know, will we be given the rates for discount at 10% or 12% or what ever is applicable?<BR>If not, can some one please tell me, how do you work out the value factors?<BR><BR>I am assuming we get the rates, but am curious to know if there is a way to work them out.<BR><BR>Thanks<BR>Shaz

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    Discounted Cash Flows

    The exams normally give you the percentage to apply on the discounted cash flow for eg 10% or 12% and the rates you should use for each year but they are very easy to work out:<BR><BR>For example 10%<BR><BR>Year 0 = 1.00<BR>Year 1 = 1/1.10 =0.909<BR>Year 2=1/1.10/1.10=0.826<BR>Year 3=1/1.10/1.10/1.10= 0.751<BR><BR>You take the discount rate for the previsous and and keep dividing by 1.10 for as many years as you want.

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