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hello sir ,
how are we going to deal with the losses in investment appraisal question ?
for eg, the co is suffering from losses in first year of its operation and the question required us to pay tax in arrears. do we have to pay tax on losses or not? how are we going to deal with this?
2)The project has a life of five years. In the first year of operation the units will be 50000 and will increase by 80000 each year till fifth year. so the units will be 50000 in 1y 130k in 2y?.We always assume that the company is already making profits and is therefore already paying tax.
If a new project makes a ‘loss’ then this simply reduces the profit the company is already making and therefore reduces the tax payable. This means that the project gives rise to a tax saving i.e. a tax inflow.
I do explain this in my free lectures. The lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.
2. On the wording as you have typed it, then yes – it will be 50,000 units in the first year and 130,000 units in the second year.
2- if the units were increased to 8ok each year from two till five . Then units in y2-5 will be 8ok right ?
1. I do explain with figures in my free lectures on investment appraisal with tax. The lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.
2. No. How can the units in year 2 be 80,000 – both you and I wrote that in year 2 they will be 130,000 units!!!!
If they increase each year by 80,000, then in year 3 they will be 210,000; in year 4 they will be 290,000; and in year 5 they will be 370,000.Sir I got a question in my previous f9 attempt in which the operating profit in the first year was negative suppose free cash flow in year 1 (5999) year 2 +788 and so on and we were required to pay tax in arrears at 25% .As We never pay tax on losses so de we have to treat this 25%*5999 =1500 as an inflow in y2 the tax on remaining years as an outflow.?
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