Dec 06 TAMPEM INC

But the examiners answer to part (b) explains the reason (as I do as well in my free lectures on APV!!). When there is a substantial change in the gearing (as there is here) then APV is a better approach. NPV assume not significant change in the risk and no significant change in the level of gearing. The question does not ask whether the project should be accepted or not - just to discuss the validity of the views of the two managers. However, the examiners answer does make it clear that (subject obviously to the assumptions involved in APV) that APV is the better approach.

In this question when calculating tax saving due to tax allowable depreciation why examiner didn't calculate tax allowable depreciation as balancing figure in year 4 as follow year 3 WDV $1856 TAD (balancing) $956 tax saving at 30% = ($956*30%)=$286.8 Realisable value $(1500-600) $900 Bpp kit Mock 2 question 3 in solution what they did was Year 4 TAD = $1856(yr 3 WDV)*25% = $464 Tax saving =$464*30%=$139 can you explain me why they did the calculation this way and if i do it my way as i have show above will it be ok...???

BPP have done it that way simply because they have copied the examiners original answer. However that was the previous examiner and he often got confused over tax in his answers :-) What you have done is more correct and would get full marks.