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Hello sir
I have some basic queries1. Why was the extra publicity calculated based on 30% tax rate and not 25%? Since the advertisement is being done in Germany shouldn’t we use Germany’s tax rate
2. I get confused as to in which currency I should base my APV calculation on. Can you confirm whether the currency is based on home country or the country where the investment will take place ?
3. We normally include investment for expansion in a regular NPV calculation right ?!
4.Why is the pv of investment for expansion multiplied by 0.751 and not 0.826?
5. Can I include year 0 calculation ? Where the redundancy cost of €5m and investment cost of €115m will be Included ? Would that be wrong ?!
6. Could we use the risk free rate for calculating the PV of tax relief from the use of debt?
1. It would be Intergrand doing the publicity and therefore it is Intergrand who would get the tax saving (regardless of what country they spent it in).
2. Whether or not it is APV, when there is a project in a foreign country you set up the cash flows in the currency of that country.
3. Yes
4. The expansion is in 2005 which is in 3 years time (the forecasts in the question go up to 2006 and are for the next 4 years). 0.751 is the 3 year discount factor.
5. No – it would not be wrong. The question asks whether the investment is worthwhile and you get this buy comparing the investment with the PV or the returns – how you go about reporting on this doesn’t matter.
6. Yes.
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