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Fernhurst (Sep/Dec 16)

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Fernhurst (Sep/Dec 16)

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  • November 25, 2021 at 5:08 pm #641621
    Artem
    Member
    • Topics: 16
    • Replies: 10
    • ☆

    Dear sir,

    Could you please explain, why when calculating the sensitivity of sales of the project in (b) part of the question, we have to multiply each cash flow by 0.75.

    Thanks in advance,

    Artem

    November 26, 2021 at 5:52 am #641651
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54499
    • ☆☆☆☆☆

    It is because of the tax.

    If the revenue falls by $1 then the profit will fall by $1 and so the tax will be lower by $0.25. So the net change in the cash flow will be $0.75.

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