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Gunning Industries mcq

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Gunning Industries mcq

  • This topic has 3 replies, 2 voices, and was last updated 8 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • August 9, 2017 at 12:25 pm #401160
    jrede
    Member
    • Topics: 7
    • Replies: 9
    • ☆

    Gunning industries is considering a new investment in a machine which has a five-year life. The investment in the new machine would also require an immediate increase in working capital of $35,000. Gunning is subject to a 40% corporate tax rate and has a 10% average weighted cost of capital.

    What is the overall discounted cash flow effect on Gunning industries ‘working capital investment over the life of the new machine?
    A. ($7,959)
    B. ($10,680)
    C. ($13,265)
    D. ($35,000)

    I have worked this question and obtained the answer C. What I’m not sure of is why we do not tax the working capital.

    August 9, 2017 at 5:06 pm #401187
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54755
    • ☆☆☆☆☆

    Working capital does not give rise to a tax effect.

    It is financing additional receivables, additional inventory etc., and they do not affect tax.

    I suggest that you watch my free lectures, because I explain this in my lectures.

    The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.

    August 10, 2017 at 2:58 pm #401352
    jrede
    Member
    • Topics: 7
    • Replies: 9
    • ☆

    Thank you! I will watch again as I may have missed it.

    August 10, 2017 at 4:47 pm #401376
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54755
    • ☆☆☆☆☆

    You are very welcome 🙂

  • Author
    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • The topic ‘Gunning Industries mcq’ is closed to new replies.

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