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Hello , one question please regard Sensitivity analysis if we want to calculate the selling price sensitivity incorporating tax which is payable in arrears , how this will be calculated
Ex : sales year1 is 1000 sales in year2 2000
Tax is 25% payable in arrears.
Df 10%
So we will calculate the Pv of sales, and we how tax will be incorporated?
Thanks in advanceFor every 1$ that the sales change then so will the profit change by $1 and therefore the tax will change by $0.25.
So what you do is calculate the PV of 75% of the sales, and then calculate the NPV as a % of this PV to get the sensitivity.
This is clear for me , but I want to know if tax is payable in arrears is that going to affect the calculation ?
So if tax of year 1 will be paid in year 2, shall we consider tax effect on Sales on year 2 only ?Sorry – I missed your mention of tax in arrears.
In that case you need to calculate the PV of the sales. Then you need to calculate the PV of the tax on the sales – the quickest way is simply to take 25% of the PV of the sales and discount it for 1 year.
Then express the NPV as a % of (PV of sales less PV of tax on sales).
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