hello!
I have questions regarding example 1, of the chapter 15.
1) why in year 1, did they inflate variable costs but not the selling price?
2) is it critical to use year 0 for cost of a machine and initial working capital? How deeply would I be mistaken to put them in year 1, and also apply discount rate for that?
3) how is tax on saving on capital allowed calculated? (f.e. 113 in year 1?)
4) I cannot understand alternative solution @5% rate. Why (3,000) at year 0?
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OT Notes, chapter 15 discounted CF
11y ago#11 Because materials and labour are in current terms but sale price is what you expect at time 1.
2 Yes
3 1,800 x 25% (WDA) x 25% (Tax rate) = 112.5
4 I don't either. Ignore.
In example 2 15% has been used as the d/c rate not 10%
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