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Sensitivity + tax

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Sensitivity + tax

  • This topic has 1 reply, 2 voices, and was last updated 15 years ago by John Moffat.
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  • June 3, 2010 at 12:14 pm #44376
    Haziq
    Member
    • Topics: 8
    • Replies: 23
    • ☆

    Hi

    If the question on sensitivity analysis from Opentuition n revision nootes had 30% rate of tax, how would we solve the question??

    June 4, 2010 at 3:30 pm #61984
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54752
    • ☆☆☆☆☆

    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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