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Hello Tutor, for PYQ June 2011 Q1 (B) to calculate “The value of cash flows after the fourth year of operation”
The examiner answer is ignoring the tax liability that delays in one yearSo,If I want to calculate the cash flows after the fourth year of operation which include the one year tax delay,is it should do like this
(2,308,000/0.12 x 0.636)- (692/0.12 x0.567)-(692×0.636)?
The examiner is ignoring everything after the 4th year (not just the tax), because that it what the question says to do.
If it had been required, then the net of tax PV would be of the flows from time 5 onwards would be (2,308,000/0.12 x 0.636)- (692/0.12 x0.567)
(Obviously, ignoring the inflation)
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