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Sensitivity + tax

HHaziq16y ago
Hi

If the question on sensitivity analysis from Opentuition n revision nootes had 30% rate of tax, how would we solve the question??
John MoffatJohn MoffatTutor16y ago#1
If there was tax, then first you calculate the NPV after tax using the normal tax rules.

If you are calculating the sensitivity of (for example) the selling price, then you need to calculate the present value of the sales flows after tax at 30%.
So.....if for example sales are $10000 p.a. for years 1 to 5, and tax on that might be $3000 for years 2 to 6 (if tax is payable one year later) - calculate the present value of those flows.

Sensitivity is then the NPV divided by the PV calculated.
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