Worked solution · Exam FM
This Exam FM sample reference tests Current Value of Dated Purchase-and-Sale Cash Flows. The second couch's value equation gives purchase cost X = 1190.82. Moving the earlier purchase of the first couch forward two months and discounting its later sale produces current net value 216.01, choice A.
Independent solution
Setup
Use the second transaction to recover the common purchase price.
Model
Value the first sale six months from today.
Compute
The first purchase occurred two months ago, so its cost has current value X accumulated for two months.
Answer
The first transaction's net current value is about 216, choice A.
Test the method on unseen problems
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Error diagnosis
These notes identify the calculation error associated with each wrong letter when that error is reproducible.
Original practice · fully worked
A dealer pays the same amount X for each of two machines. Machine B is bought today and will be sold for 1,200 nine months from today; its net present value is 150. Machine A was bought three months ago and will be sold for 1,200 six months from today. At a constant annual force of 8%, find Machine A's net value today.
Machine B fixes X at 980.12. Machine A's sale is worth 1152.95 today while its past cost has grown to 999.92, giving net value 153.03, choice C.
Setup
Recover X from Machine B's present-value equation.
Model
Discount Machine A's sale from six months ahead.
Compute
Accumulate its purchase cost from three months ago to today.
Answer
The resulting net value is 153.03.
Keep practicing
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