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Hello John
For calculating the sensitivity of selling price we need to consider the tax paid on it. I understand this. However the way i do it is make cash flows out of revenue every year, deduct the tax arising out of it to get the cash flow aft tax and then discount it with the factor provided. The answer hence do not match. Mine is 2.3% whereas the solution says 2.4%
Is my method right?
Many thanks!!What you are suggesting doing is fine, provided that you appreciate that the tax flows will be one year later than the revenue flows, and therefore need discounting for one extra year.
yes I have taken tax in arrears. So a slight difference in sensitivity is ok?
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