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Today I have F9 exam where I was told to calculate sensitivity analysis of Sales revenue where the sales were given as after-tax sales.
I suppose it is sales tax so I calculate the sensitivity analysis on before-tax sales.
NPV was $458,000, and after-tax sales were $3.64m, and corporation tax was 30% (as far as I remember figures were around this :))
Sensitivity Analysis = 12.6%
I hope it is correct that we should take before-tax sales? What do u say?
What is the role of corporation tax in sensitivity analysis?
I think sentivity analysis incorporate tax on those figures which are effected by tax
NPV/PV of sales (1-t)
To me as figure of sales is given after tax so to me we donot need to take corporation tax so it would be simply
NPV/SALES
But sir John can give his final verdictSales tax is not relevant in Paper FM.
We look at the sensivitiy of the after tax flows. What syedmushahid has written is correct.
Since sales are given after-tax isn’t it correct to calculate the before-tax sales so that we can calculate sensitivity analysis by taking NPV / Sales like this:
before-tax sales = $3.64m 70 x 100 = $5.2m
Sensitivity Analysis = $458,000 / $5.2m = 8.8%
Because corporation tax doesn’t charge on sales rather net operating cash flows. true?
How you calculate PV of a cash flow in investment appraisal
Starting from sales at what point you deduct the corporation tax.
Means to reach net cash flow for PV calculation at end we have to (-) tax before.
(sales-variable cost-fixed cost=operating cash flow) after we deduct tax to reach PV in case there are no other adjustments.so it means all those things before tax (sale variable cost fixed cost) are effected by tax.
So for all those figures corporate tax will be incorporated for sentivity analysis.
That is NPV/PV of cash flow (1-t).
As sales figure is mentioned in the question that it is after tax that’s why there was no need to deduct the tax again.
It will be simply NPV/ SALES FIGUER
I understand like this
But sir John can explain better than anybody
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