On December 2012, Question 1 PV. I was unclear to how the CA tax benefit was calculated.
The examiner says:
“A nominal terms evaluation had to be undertaken because tax on profits was being paid one year in arrears, and because specific inflation rates were linked with selling price, variable cost and infrastructure costs. The nominal after-tax cost of capital of 12% was given in the question. Some answers mistakenly used the real after-tax cost of capital of 9%, or tried to calculate another discount rate altogether using the Fisher equation, but all that was needed was to use the 12% rate provided”.
But I still cannot get to the value of 300 over 4 years. Thank you