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Ch 19 - change in PVIF - solution 19.6 - p. 32

V

Viki2010

Member
Hi, in terms of change in PVIF, I have a one question:

1. The unwinding of RDR - I am not sure if I fully understand the calculations of this. Are there any examples somewhere of how the "unwind of the RDR" would be calculated?
 
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The "unwind of the RDR" item of the analysis of change in EV arises due to the future profits being one year closer and therefore being discounted by one less year. In other words, the PVIF is expected to increase by a factor of (1+r) over the year, where r is the RDR, all else being equal.

Therefore the change in PVIF (which is what contributes to the change in EV over the year) due to the unwind simply equals r multiplied by the start year PVIF.
 
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