1. avatar says

    Mr Moffat
    I was trying to do Guestion 9 Ballet plc from the practice questions. I would like to know for a question like this how will i know that the increased costs production starts in the first year and also why the capital allowances start in year 0. I would also like to know why was tax not calculated but instead full capital allowances and tax savings were included.
    Thank you

      • Avatar of johnmoffat says

        The question says that currently production is 10,000 tonnes but that it is growing at 5% p.a.. This implies that next year (i.e. year 1 in the appraisal) the production will be 5% higher (and then 5% higher again in year 2 and so on).

        The writing down allowance is only there as part of workings (to calculate the tax saving) – it has not been included in calculating the net cash flow. So, for example, the net cash flow at time 1 is 0.250 – 0.050 – 0.315 + 0.083 = (0.032)
        Tax has been calculated – but as in my lectures it has been calculated in two parts – the tax on the operating flows (at time 2, 0.315 x 33% = 0.104); and the tax saved on the capital allowances (at time 1, 0.250 x 33% = 0.083).

        Finally, the question says that the machine will be in working order immediately prior to the next financial year. This implies that it was bought in the current financial year, and so capital allowances will be given now – time 0 – and the benefit of the tax saving will be one year later i.e. at time 1.

  2. avatar says

    I’ve just come across Open tuition, and i have to say i am really impressed.

    I am currently a member of Interactive Study, however i will be using Open Tutition as a platform to study whilst at work on my lunch break.

    Nicely put together.

  3. avatar says

    I really appreciate the way u make it easier for us to understand not just learning by heart or reading in the book. I like the last part where you analyse the NPV whether to accept or reject some ideas where in my head frankly speaking but I did not that I am right, Thank you very much Sir

  4. avatar says

    I am enjoying the lectures.
    I however dont get the way the lecturer writes in capital letters all through;ideally capital letters are used for the headings and rest of the stories in small letters

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