Burung CO june 2014

1. In the year that the asset is sold, there is a balancing allowance/charge of the difference between the sale proceeds and the tax written down value.
Here, the tax written down value after 3 years is 4.5M, the proceeds are 4M, and so there is a balancing allowance of 0.5M.

2. When using the asset beta formula in the exam, we always assume a debt beta of zero.

3. If the question requires the APV, then for the base case NPV we discount at the ungeared cost of equity (i.e. the cost of equity if there was no gearing). The tax saving on the interest is discounted at either the return on debt or at the risk free rate – there are arguments for both, and the examiner always accepts either (even though obviously the final answer is different). The examiner does say this in his own answer.

I do suggest that you watch my free lectures because all of the above is explained in full in my lectures (and, if necessary, for the first two questions the relevant Paper F9 lectures as well because they are revision of F9).

The residual value is never subtracted from the cost to get the tax allowable depreciation (it is not the same thing as the financial accounting depreciation). It is always calculated on the original cost. Again – it really would be worthwhile you watching the paper f9 lectures on relevant cash flows for investment appraisal, because I go through the tax rules in full.

I don’t know what you mean by the acca online webinar. if you are meaning our free lectures on this website, then they are sufficient provided that you are already confident about paper F9 and provided, as always, that you have a Revision Kit from one of the acca approved publishers and work through all of the questions.