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Hello, there are several questions about the answers
(1) How do these figures be computed for Tax on saving on capital allowed (year 1 to 5)? (At year 5, a negative figure indicates THERE SHOULD BE a outflow for paying tax.)(2) Why the $200 working capital should be added back at the end of year 5? Does it mean that this project should generate this figure by project end?
(3) Is the second table for the NPV +$258 IRRELEVANT to this example 1? I do not understand all figures came from which sources.
(4) As I read through the up-to-date BPP workbook for this topic, there would be differences between formula setting in spreadsheet and conventional formula in calculator for both IRR and MIRR. In CBE,
is it possible to get credit for using spreadsheet approach?(5) EPS is not the same as ROE as you previously say. As I have checked for the past text book, the formula for ROE is operating profit after interest, tax and preference dividends over the weighted average of equity shares. This is not same as the formula as you mentioned before: dividend / equity.
Please explain.1 The machine cost 1800. First year capital allowance is 25% of that, 450. Tax saved is 25% of that ie 113. Wdv is now 1800 – 450 = 1350. 25% of that is 338. Tax saved on that is 25% ie 84. Etc At the end of the project the WDV is less than the proceeds so there is a balancing charge.
2 The assumption always os that working capital is recouped at the end of the project Think of an initial investment in inventory, now released.
1 and 2 are completely standard in NPV calculations. If you do not understand these you need to refer to the FM notes.
3 As far as I can see, this is not relevant and should not be there. Sorry.
4 Yes. The differences should not be great anyhow.
5 Sorry, I gave the formula for dividend yield, not ROE.
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