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Hi
I want to ask that how we calculate the sensitivity of change in selling price as there is a requirement in one of the question in the Kaplan kit called WARDEN CO which i did’nt fully understand?
following is the data:
NPV = +103,000
Revenue = 1,600,000
Tax @ 30% one year in arrears
Life = 5 years
Cost of Capital = 11%
Tax Dep’n = NILI do not have the Kaplan Kit – only the BPP Revision Kit.
However for every $1 increase/decrease in the revenue, there will be a $1 increase/decrease in the profit, and therefore a change in the tax charge of 30% of change in the revenue.
Therefore you need to take the normal approach (as explained in my free lectures) and calculate the NPV as a % of the total PV of the revenue flows and the PV of the tax on the revenue flows.
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