Dear Sir John Moffat, when we do project appraisal through Money term approach, we inflate the cash flow according to the relevant inflation rate & use Monetary wacc to discount those cash flow... but there could be another scenario that our annual cash flows are fixed (eg. paying annual insurance premiums) meaning that these cash flows would'nt inflate as inflation rises irrespective of the inflation rate in the country, so in this kind of scenario whether we are to use Monetary Wacc or Real Wacc for discounting? let me give an example of such case: assume that we are to pay fixed 50,000 annual premium for 20 years and at the end of 20th year we will get 4Million inflow (like happens in Insurance policy), we assume that inflation rate in country would be 15% YoY and we require 10% Real Return; How should we do its appraisal? What would be the discount rate i.e money rate or real rate?
Out tutors do not monitor posts here. Please ask in the free Ask the Tutor Forum on our free website. Out tutor always replies to question posted there :-)
Have you not changed from working in 000s to working in 0000s half way through? Eg For Y2, cash flow 43,513 - 10,025 tax (25% of 40,100 from Y1), + 175,000 tax saving allowance = £208,488. You have 510,000 which makes me think you have classed 435 as 435,000 instead of 43500? Apologies if I’m mistaken
Great, Thank you Sir
Thank you sir!!!
Dear Sir John Moffat,
when we do project appraisal through Money term approach, we inflate the cash flow according to the relevant inflation rate & use Monetary wacc to discount those cash flow...
but there could be another scenario that our annual cash flows are fixed (eg. paying annual insurance premiums) meaning that these cash flows would'nt inflate as inflation rises irrespective of the inflation rate in the country, so in this kind of scenario whether we are to use Monetary Wacc or Real Wacc for discounting?
let me give an example of such case: assume that we are to pay fixed 50,000 annual premium for 20 years and at the end of 20th year we will get 4Million inflow (like happens in Insurance policy), we assume that inflation rate in country would be 15% YoY and we require 10% Real Return; How should we do its appraisal? What would be the discount rate i.e money rate or real rate?
Out tutors do not monitor posts here. Please ask in the free Ask the Tutor Forum on our free website. Out tutor always replies to question posted there :-)
Have you not changed from working in 000s to working in 0000s half way through? Eg For Y2, cash flow 43,513 - 10,025 tax (25% of 40,100 from Y1), + 175,000 tax saving allowance = £208,488. You have 510,000 which makes me think you have classed 435 as 435,000 instead of 43500? Apologies if I’m mistaken
tnx