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hi sir,
i understand the sales revenue and projected costs should be inflated. but if i apply the inflation rates i do not get the correct sales revenue and costs amount in the model answer.
i do it as follows
sales revenue
23.03*1.08=24.87
36.60*1.08=39.528
49.07*1.08=52.99
27.14*1.08=29.311the correct revenue figures in the model answer are
24.87
42.69
61.81
36.92and the costs amount also i just multiply the costs in the question times the inflation rate of 4%.
please sir what is the right way.
If the inflation is 8% a year you need to inflate by 8% for every year.
So first year: 23.03 x 1.08 = 24.87
Second year: 36.60 x 1.08^2 = 42.69
Third year: 49.07 x 1.08^3 = 61.81
and so onI do suggest that you watch the Paper F9 lecture on “Investment Appraisal with inflation” where this is all explained.
Hi Sir ,
why the tax shield and benefit from subsidised loan used the 42970 rather than 43847 after
taking account of transaction cost .Thanks in advance
The wording of the question is a little ambiguous – it depends from where the transaction costs were being paid.
I would actually have calculated the tax shield on the full amount of 43847, and I am certain I would still have got full marks.Sir,
why do we add back the depreciation in Yilandwe co to find cash flows but not in Burung co?In Yilandwe the depreciation was subtracted in the actual cash flow statement and therefore needed adding back after the tax was calculated.
In Burung, it was not subtracted in the cash flow statement – it was simply subtracted in the separate workings for the calculation of the tax – and therefore there was nothing to add back.
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