• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
Free ACCA & CIMA online courses from OpenTuition

Free ACCA & CIMA online courses from OpenTuition

Free Notes, Lectures, Tests and Forums for ACCA and CIMA exams

  • ACCA
  • CIMA
  • FIA
  • OBU
  • Books
  • Forums
  • Ask AI
  • Search
  • Register
  • Login
  • ACCA Forums
  • Ask ACCA Tutor
  • CIMA Forums
  • Ask CIMA Tutor
  • FIA
  • OBU
  • Buy/Sell Books
  • All Forums
  • Latest Topics

20% off ACCA & CIMA Books

OpenTuition recommends the new interactive BPP books for September 2025 exams.
Get your discount code >>

Taxation Present Value

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Taxation Present Value

  • This topic has 5 replies, 2 voices, and was last updated 3 years ago by John Moffat.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • May 23, 2022 at 4:32 pm #656265
    Anonymous
    Inactive
    • Topics: 29
    • Replies: 39
    • ☆☆

    A company receives a perpetuity of $20000 per year in arrears and pays 30% corporation tax 12 months after the end of the year to which cash flows relate. At cost of capital of 10% what is the after tax present value of the perpetuity?
    My question is why does the answer scheme not include the after tax cost of capital of 7% and why is one year in arrears of $20000 not in T2 instead of T1?

    May 23, 2022 at 8:18 pm #656278
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54696
    • ☆☆☆☆☆

    I have no idea what answer scheme you are referring to.

    The 20,000 is a normal perpetuity starting in 1 years time.
    The tax on the 20,000 is 1 year in arrears and is therefore a perpetuity starting in 2 years time. As always (and as revision from Paper MA) if a perpetuity starts 1 year laters (at time 2 instead of at time 1, then we need to discount by one more year to get back to the present value now.)

    According to what you have written the cost of capital is 10%, so why on earth do you want to use 7%? The WACC is calculated always using the cost of equity (for which tax is irrelevant) and the after tax cost of debt.

    May 24, 2022 at 1:01 pm #656326
    Anonymous
    Inactive
    • Topics: 29
    • Replies: 39
    • ☆☆

    But in the free lectures specifically example 7, we took T1-infinity minus T1-T4, meaning the perpetuity usually starts in 1 year hence when they say arrears doesn’t it mean T2?

    May 24, 2022 at 1:18 pm #656334
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54696
    • ☆☆☆☆☆

    No. In arrears means the end of the year.

    The end of the first year (and start of the second year) is one year from now and is therefore time 1.

    May 24, 2022 at 8:27 pm #656378
    Anonymous
    Inactive
    • Topics: 29
    • Replies: 39
    • ☆☆

    So if say the question states the company receives $20000 now(or in advance) in perpetuity, does that mean its T0-infinity ?

    May 25, 2022 at 8:00 am #656410
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54696
    • ☆☆☆☆☆

    Yes – it would be time 0 to infinity.

  • Author
    Posts
Viewing 6 posts - 1 through 6 (of 6 total)
  • You must be logged in to reply to this topic.
Log In

Primary Sidebar

Donate
If you have benefited from our materials, please donate

ACCA News:

ACCA My Exam Performance for non-variant

Applied Skills exams is available NOW

ACCA Options:  “Read the Mind of the Marker” articles

Subscribe to ACCA’s Student Accountant Direct

ACCA CBE 2025 Exams

How was your exam, and what was the exam result?

BT CBE exam was.. | MA CBE exam was..
FA CBE exam was.. | LW CBE exam was..

Donate

If you have benefited from OpenTuition please donate.

PQ Magazine

Latest Comments

  • dkessilfie on FM Chapter 1 Questions – Financial management objectives
  • ahmadhoney on ACCA Advanced Audit and Assurance (AAA) The Audit Report 3: Types of Audit Report
  • Bimasha@123 on Discounted Cash Flow Techniques – ACCA Advanced Performance Management (APM)
  • Ken Garrett on Discounted Cash Flow Techniques – ACCA Advanced Performance Management (APM)
  • Bimasha@123 on Discounted Cash Flow Techniques – ACCA Advanced Performance Management (APM)

Copyright © 2025 · Support · Contact · Advertising · OpenLicense · About · Sitemap · Comments · Log in