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Sept/Dec 2016 Sensitivity of selling price

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Sept/Dec 2016 Sensitivity of selling price

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  • December 4, 2018 at 12:33 am #487091
    jayped
    Member
    • Topics: 10
    • Replies: 8
    • ☆

    Hi John,

    Section B question 2 (b) of the Sep/Dec 2016 paper asks to calculate the % change in the selling price required for the investment to have a zero NPV…
    Can you please tell me why our discounted revenue cash flows are multiplied by 0.75? Are we calculating the after-tax revenue cash flows then discounting?

    Thanks.

    December 4, 2018 at 7:31 am #487122
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    Yes. For every $1 change in the revenue, the profit will change by $1 and therefore the tax will change by $1 x 0.25. So the net effect is a change of $1 = 0.25x$1 = $1 x 0.75

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