Hi guys. I just did a question from a finquiz mock exam. Basically the clients net cash flow was negative in years 1,2,3 and then leveled out. The answer only subtracts the negative cash flow in year 2 from the investable base and also excludes the proceeds from the sale of business in calculating required return.
My question is, generally shouldn’t the negative from each year be subtracted from existing portfolio and then add proceeds from sale of business?
Most likely reason for the solution being that way is because you did not pay attention to when the IPS was supposed to be written. Most likely it was at the end of year 2 … ?
Question states: calculate average annual after tax nominal return for the IPS if his business is sold 3 years from today.
The answer does not add the proceeds of the business to his existing base. I believe the answer is a typo.
Anyway what is the correct method?
i have not used finquiz myself, but many threads here say their questions are riddled with errors
calculate average annual after tax nominal return for the IPS if his business is sold 3 years from today.
If this were to be calculated NOW - their answer makes sense
If this was to be calculated for the 1 day after 3 years from Today - then your answer would make sense…