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1Marketing exp is tax allowable as stated in the question but I see nothing treatment regarding this in the answer
2inthe answer 2.78 years to recover half the prof project why not the whole pv of project
3 reduction in selling price I am always find it difficult to deal with this what’s the common practice or tip to deal with this1. The marketing expenditure has been deducted in arriving at the taxable profit. It has therefore been taken as being tax allowable.
2. The duration always gives the approximate time to recover half the PV – that is the purpose of calculating the duration (and the question specifically asked for the duration).
3. This is the same as calculating the sensitivity. The sensitivity is calculated as the NPV divided by the PV of the flows that are to change (expressed as a %).
In this question the flows that will change are the revenue flows together with the tax on the revenue flows.
For a full explanation of why sensitivity is calculated this way, have a look at the free F9 lectures on investment appraisal under uncertainty.
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