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
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Fernhurst (Sep/Dec 16)
4y ago#1It 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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