June 2011 Q1

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October 3, 2018 at 2:02 pm #476227
toushiga
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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 year

So,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)?
October 3, 2018 at 2:51 pm #476234
John Moffat
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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)
October 4, 2018 at 1:08 am #476302
toushiga
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How about the tax delay of year 4 in year 5?
October 4, 2018 at 7:35 am #476322
John Moffat
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That is already dealt with in the existing NPV covering the first 4 years of operation. You asked about the extra PV resulting from operations after year 4.
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