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Hi, this is an answer from the APV question, calculating the Base Case NPV.
Year Equipment Operating CF Tax on CF TR on TAD. NCF
0 (1000) – – – (1000)
1 – 400 – – 400
2 – 450 (120) 75 405
3 100 400 (135) 56 421
4 – – (120) 139 19I am wondering if I changed the presentation style, the NCF should be the same. But how should I tackle the taxable loss of 62?
Year 0 1 2 3 4
OCF 400 450 400
-CA (250) (188) (462)
Taxable profit 150 262 (62) xxx??
Tax (45) (79)
Add CA 250 188. 462
Equipment (1000) 100
NCF (1000) 400 405 421If a company is considering a new project in the same country, then a ‘taxable loss’ simply reduces the existing profits of the company which means they save tax. So there is a tax inflow as far as the project is concerned.
If the project is in another country, then a tax loss means no tax payable for that year, but the loss is carried forward and reduced the taxable profit in future years.
Hi John, so it means that by the second presentation style, there should have a positive tax in Year 4 right? Hence the 2 presentation should give the same answer.
I have given you the rules for dealing with tax, but I cannot comment on the answers you wrote in your original post without seeing the whole question.
If it is a past exam question or a question from the BPP Revision Kit, then tell me which question and then I will be able to answer you.
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