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Hi,
1) In December 2009 question 1, when required to calculate the NPV.
If I include the licensee fee (and its tax effect and calculate all the figures all over again for taxable CFs, C/A and tax), and discount it by the cost of capital, will I be right ? (i end up with a different answer though)2) Suppose there is a full year capital allowance in the first year and the machine will be sold in year 4, will a balancing charge arise in Year 4 ?
Kindly advice
If you are referring to part (b) of the question, then (as the examiner has written in his answer) if you had discounted the financing flows are the cost of capital of 11% then that would get full marks (even though obviously the answer will be different).
Had there been 100% FYA in the first year then yes, there would be a balancing charge in the final year.
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