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1. Sir I don’t understand the 5th point regarding capital allowances, in the suggested answer by ACCA examiner. Its totally my bad for not being able to recall such an important topic from TX and SBR syllabus. So, can you help me understand this point in a bit simpler manner? Esp. the point regarding how allowances increase post-tax net cash flows?
2. Also in 4th point, am unclear as to why the answer says that current WACC is not truly reflective of the financial risk associated with the investment? I mean why would it say that 8% interest is not included in WACC? Its quite possible that WACC includes 8% discount factor, yet preparer of NPV analysis, uses it separately, thus double counting?
Your help is much valued, always!
3. Sir in the 1st point same subpart, I was wondering how increase in revenue leads to increase in contribution, I mean unless variable costs fall as a percentage of sales, it is not possible for contribution to rise, correct? So why does suggested answer says that contribution would increase (or in other words variable costs fall) over the project duration?
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