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Ques(b) how did they got the 75% to discount the revenue cash flows.
Always thanking you sir….
They haven’t discounted at 75% – they have discounted at the cost of capital of 11% !!!
The 75% is to get the revenue after tax of 25%. This is normal for sensitivity calculations.
(For every $1 change of revenue, the taxable profit will change by $1 and therefore the tax payable will change by $0.25. So the change in the cash flow for every $1 change in revenue will be $0.75.(
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