Question 2 - Part a
You'll learn how to build a complete net present value calculation in a spreadsheet, working through multi-currency cash flows, capital allowances, tax adjustments, and working capital movements.
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In this lesson
- 0:00 Building the NPV spreadsheet
- 2:01 Entering contribution and fixed costs
- 3:04 Calculating capital allowances
- 4:02 Computing taxable profit and losses
- 5:02 Handling tax loss carry forwards
- 6:20 Adding back non-cash items for tax
- 7:45 Including land and buildings disposal
- 8:43 Working capital investment and recovery
- 9:29 Converting to euro cash flows
- 10:18 Calculating exchange rates with inflation
- 12:02 Computing intercompany contribution flows
- 14:40 Inflating transfer prices by year
- 18:04 Applying tax on component flows
- 19:43 Calculating NPV at different discount rates
- 21:28 Interpreting results and key assumptions
About this lesson
This walkthrough covers the full mechanics of part (a) of a complex investment appraisal question, showing you how to structure your NPV model efficiently, handle common pitfalls like year-zero timing and loss carry-forwards, and present your findings clearly. You'll see how to manage intercompany cash flows between different currency zones, apply inflation rates correctly, and calculate NPV at different discount rates to support investment decisions. This is essential preparation for AFM or similar advanced financial management exams where multi-step investment appraisals are a core skill. The session demonstrates practical spreadsheet discipline: building your model logically, using copy-paste functions where calculations repeat, and flagging where you might run short on time so you can prioritise high-value marks. You'll see how to handle tax complications like capital allowances on plant and machinery, working capital recovery, and foreign exchange rate movements using interest rate parity. The tutor also shows you how to sense-check your results—comparing NPVs at 13% and 16% discount rates to understand how sensitive the decision is to your cost of capital assumption. By the end, you'll have a complete template and the confidence to tackle similar questions under exam conditions.
Duration: 24m
Transcript
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