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Fernhurst (Sep/Dec 16)

Forums › ACCA Forums › ACCA AFM Advanced Financial Management Forums › Fernhurst (Sep/Dec 16)

  • This topic has 3 replies, 4 voices, and was last updated 1 day ago by balleong.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • October 23, 2020 at 2:35 pm #592947
    yasmineara
    Member
    • Topics: 1
    • Replies: 0
    • ☆

    Hi

    My question related to question (b) about sensitivity analysis for selling price ( selling price reduction):

    My understanding of sensitivity analysis for selling price is calculated as follow:

    -NPV of project/ PV of total revenue
    -So calculation of percentage reduction should be:
    7801/ (13250*0.901+16695*0.812+22789*0.731+23928*0.659) = 13%
    -However in the BPP kit the answer is 18 % because each year revenue is reduced to 75% (0.75);
    – My question actually is; why is revenue reduced to 75%? Is that tax 25% taken into account?

    Thank you so much,
    Yasmine

    October 24, 2020 at 10:48 am #593006
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54675
    • ☆☆☆☆☆

    In future if you want me to answer then you must ask in the Ask the Tutor Forum – this forum is for students to help each other.

    For every $1 change in the revenue, the profit will also change by $1. Since there is tax of 25%, a $1change in the revenue will mean a $0.75 change in the operating cash flow.

    November 20, 2020 at 2:27 am #595684
    kapema
    Member
    • Topics: 0
    • Replies: 2
    • ☆

    Use the sales after tax then multiply by the discount factor

    June 4, 2025 at 2:42 am #717639
    balleong
    Participant
    • Topics: 4
    • Replies: 68
    • ☆☆

    I also have something I cannot understand in Part (a). In the answer provided, it states that the 2.78 years calculated for the duration means it takes “2.78 years to recover half the present value of the project”. I thought it means 2.78 years to recover the investment into the project? I am not able to work out the logic of this statement.

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