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Sensitivity analysis

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Sensitivity analysis

  • This topic has 3 replies, 2 voices, and was last updated 5 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
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    Posts
  • March 3, 2020 at 11:24 am #563837
    asmaalhemairi
    Participant
    • Topics: 30
    • Replies: 22
    • ☆☆

    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 advance

    March 3, 2020 at 3:47 pm #563895
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    For 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.

    March 3, 2020 at 7:17 pm #563977
    asmaalhemairi
    Participant
    • Topics: 30
    • Replies: 22
    • ☆☆

    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 ?

    March 4, 2020 at 7:00 am #564048
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    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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