Fernhurst (Sep/Dec 16)

This topic has 1 reply, 2 voices, and was last updated 4 years ago by John Moffat.

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November 25, 2021 at 5:08 pm #641621
Artem
Member
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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
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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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