Q16, what rate of discount they have used for discounting? And why? . Please reply as soon as possible
The rate of discount is 15% as stated in the question. Any confusion may result from timing. The cashflows (other than at time 0 and 5) are actually assumed to be 1/2 way through the year. So, "time 1" is actually discounted to time 0.5 and so on.
So that is becayse of their assumption? If we discount them @15% assuming they happened at year end, we will be correct? . And in year 5, they have shown total depereciation on planes. Why?
And they have used different discounting factore for sam time period i.e. in time period 5, . 0.53 & 0.5 How's that possible?
The discounting is time 4.5 and time 5 as per my earlier comment. At time 5 (the end of the period) the company must pay off its loan and it receives the remaining book value of the planes on their sale. In a UK exam if you clearly stated your assumption (I.e. cashflow at the year end) you would expect to receive full marks. If the assumption was not reasonable the penalty would likely only be 1 mark.
Oh..okay..! But they have taken 102.38(which is our total dep) and our scrap will be 250-102.38... so why hav they used 102.38?
The final cashflow is Pay loan + receive sale proceeds from plane = pay loan + (original cost of planes less accumulated depreciation) As loan = original cost of planes, the net cashflow is the depreciation
