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Hello,
I do not at all understand the logic behind the answer of question 2 part b. Please help.
Hi Shamzz,
I have the same as you. Btw, do u know why the working capital is calculated in year 1 like this?
Thanks,
TrietWe are investing 1025 now (T0) . Working capital has to be increased by inflation rate. Year 1(T1) the inflation rate is 4% . So 1025*1.04=1066 . So the increase in Working capital for T1 is 1066-1025=41 .
John will explain it to you better than me . Wait for his reply
shamzz: The question is asking for the sensitivity of the revenue.
For the NPV to fall to zero, it needs to fall by 7801. The only flows that will change are the revenue flows (after tax), which have a PV of 43,441.
Therefore the % fall needed in the revenue is 7801/43441My Paper F9 lectures on this will help you (because this is revision from F9).
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