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Hello john I wanna ask you that in today’s Advance Financial Managment paper in NPV question there was a statement that Yuwa Co earns considerable amount of profit from other activities to take advantage of tax relief? What does this statement means? Does it mean that the company doesnot want it’s tax relief to be carried forward on the project’s next year profit because it takes advantage of tax relief from other activities? And will we carry forward tax losses on next year’s profits in the project?
If the new investment is in the same country as the company, then we always assume that the company is already making profits and is already paying tax. Therefore if the new investment makes a profit then there is more tax payable, but if the new investment makes a ‘loss’ then it reduces the existing profit of the company meaning that there is less tax payable (and so a tax saving – so effectively a cash inflow due to the investment). This is not the choice of the company – it is normal tax rules.
This is always the case in Paper FM (was F9) because then investments are always in the same country. In Paper AFM it is the same, unless the investment is in a different country, in which case a loss is a tax loss and the loss is carried forward to reduce future taxable profits.
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