Keep this set of formulas handy if you are studying ACCA F9, P4 or P5 or CIMA P1 and F3. These formulas will frequently crop up so it’s a great idea to learn them now so you may recall them throughout your studies and exams.
'Yr n' is the number of years that the cash flow is received for.
Discounting a single cash flow
PV = Cash flow x discount factor
Annuities – cash flows that occur annuity for a finite time period
Discounting an annuity starting in one year’s time
PV = Annual Cash flow x annuity factor yr n
Discounting an annuity starting immediately
PV = (Annual Cash flow x annuity factor yr n-1) + annual cash flow
Discounting an annuity starting in year 4
PV = (Annual cash flow x annuity factor yr n) x discount factor for the yr before the annuity starts
Perpetuities – cash flows that continue into the foreseeable future
Discounting a perpetuity starting in one year’s time
PV = Annual Cash flow / discount rate
Discounting a perpetuity starting immediately
PV = (Annual Cash flow / discount rate) + annual cash flow
Discounting a perpetuity starting in year 4
PV = (Annual cash flow / discount rate) x discount factor for the yr before the perpetuity starts