Page 141 - Microsoft Word - 00 CIMA F1 Prelims STUDENT 2018.docx

Further aspects of investment appraisal

Objectives

Methods of dealing with inflation

Real Method Money/nominal method

Do NOT inflate the cash flows
– leave them in real terms Inflate each cash flow by its
specific inflation rate
i.e. in today’s (T ) prices – i.e. convert it to a money flow
0
real flows

Discount using the real rate Discount using the money rate

Illustrations and further practice

Now attempt example 6 ‘Storm Ltd’, example 7 ‘Thunder Ltd’, and example 8
‘Ackbono Ltd’.

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