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If one year delay in tax
* if the first CF is on 1st day of accoutning period, then first tax effect is @time2*If first CF is on last day of accounting period , then first tax effect is @ time 1
can you give me small example for both case.
thanks for answering all my questions , I signed up for 4 papers … I did go through all the lectures and notes and felt it was easy, admit didnt give the lecture its due right, now m going through the notes again and doing questions
…. I am worried… but I ll try my best .. thanks for the support..I understand you are doing a lot – but I have to support all students fairly
Take a really simple example
1000 pa – 30% taxIn year
/////////1 ////// 2 ///// 3
PBT 1000/// 1000//// 1000
Tax 300 /// 300 //// 300Delay a year
The NPV becomes 4 Years
/////////1 ////// 2 ///// //3////////4
PBT 1000/// 1000//// 1000
Tax 00000////300 /// 300 //// 300Another example:
Pays taxation one year in arrears at an annual rate of 25%.
Year //////////////1 ////// 2 /////// 3 ///// 4 //// 5 //// 6
various at $000
Cash inflows (1-5) 700.4 //721.4// 743.1 ///765.3///788.3
Tax on cash
inflows (2-6)//////// 175.1 //180.4 // 185.8// 191.4 // 197.1net cashflows (1-6) 700.4 //546.3// 562.7// 579.6//596.9//(197.1)
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time 0? what does it mean CF on first day of accounting period and last day ?
It means to is today
t1 is the end of this first year and so onThe only things that will be in to will be
Investments
WC in advance
Lease payments in advanceetc
Cash flow on the first day of the accounting period refers to a cash flow that occurs at the beginning of the year. It is assumed that all cash flows in the NPV question occur on the first day of an accounting period unless stated otherwise.
On the other hand, cash flow on the last day of the accounting period refers to a cash flow that occurs at the end of the year.
The timing of the cash flow, whether it is on the first day or the last day, determines the timing of the tax effect.
If the first cash flow is on the first day of the accounting period, the tax effect is at Time 2.
If the first cash flow is on the last day of the accounting period, the tax effect is at Time 1.
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Hey , Thanks alot , results came in today , and I passed three of them ..
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thank you!
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