For real estate invested amount, if a sum of money was invested for 90% of the period, its weight is 0.9
What if we are considering an outflow, should not its weight be the time it was NOT invested. So if it was taken out on day 90 or 100, we subtract amount*0.1…???
Seems straight forward to me, however I am looking at Schweser mock, and they give you value and weight, and you are left wondering if the weights for the negative values are given as time invested or time not invested…
you are refering to capital employed correct?
Cap Employed = Beg Cap Employed + CF(W1) + CF(W2)…if you have a negative cash flow or outflow, we still use this equation, but the negative ends up being subtracted out…so if beg CE is 1M, CF = 500k with a weight of .75 and CF2 = -300k with a weight of .5, we plug in:
1M + 500k(.75) + -300l(.5) = 1M + 500k(.75) - 300k(.5)
Case A
Say you have 1000 invested for 100 days
On day 90 you add 500, so your invested amount is, 1000+500*0.9
Easy
______
Case B
Say you have 1000 invested for 100 days
On day 90 you take out 500, according to you are saying, the invested amount is 1000-0.9*500
But you just made yourself look very good, cause you reduced the invested amount by a huge number, for out flows you should do 1000-500*0.1 which reflects the fact that the 500 was invested most of the period…
Shouldn’t case A be [1,000 + (0.1*500)]? as opposed to 1000+0.9*500. Afterall, you only used the 500 for 10% of the period as opposed to 90%.
And case B should be 1,000-500*0.1
Yup thanks, now i see whats wrrong, somehow i started with a wrrong example and just kept thinking about it over and over again
thanks!