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Sir, in BPP kit, question 150, while calculating the sensitivity to selling price, why do they take present value post tax revenue figure instead of present value of revenue?
Because if the revenue changes, then so too does the profit change, and therefore so too will the tax change.
If the revenue increases by (say) $100, then the profit will increase by $100, and therefore the tax on the profit will increase by (if the tax rate is say 30%) $30.
So the resulting increase in the cash flow will be 100 – 30 = 70.So, do we also add the tax benefits to the present value of expenses when calculating the sensitivity to expenses?
I’m sorry sir, will we add or deduct the reduction of tax from the expenses for the denominator?
I’m sorry sir, will we add or deduct the reduction of tax from the expenses for the denominator?
Thanks a lot sir 🙂 . By mistake I had typed add and was confused with the affirmative answer.
Thanks again 🙂
All the figures used in the calculations are estimates. Sensitivity analysis identifies the most critical of the estimates.
I suggest that you watch my free lectures on this. The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.
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