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Hello Sir,
in question part b it is stated that we have to Calculate the % change in the selling price required for the investment to have a zero net present value.Now in the Model answer why have they multiplied the 0.75 in every cashflow of Sales revenue
Because for every $1 change in sales revenue, there will be a $1 change in the taxable profit and therefore a $1 x 0.25 change in the tax charge.
So the net effect is a change of $1 x 0.75 in the cash flow.
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