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I don’t understand partc Selling price sensitivity
The present value of revenue = 100000*16*3.696=$5913600
Tax libabilites arises from sales revenue= 100000*16*0.30=$480000
Present value of tax liabilites without lagging = 480000*3.696=$1774080
Sir my point is if they have already calculated the present value then again why they have disounted lagging by one year present value of tax liabilites= 1774080*0.901=$1598446
After present value of sales revenue = 5913600-1598446=$4315154
I dont undestand this calculation sirI guess you are happy from my lectures on this that we calculate the sensitivity by diving the NPV by the PV of whatever it is that changes,
In this case, as the selling price changes so the total revenue will change. But also, if the revenue changes then the tax will also change (less revenue means less tax payable).
Given that the tax is 30%, then the PV of the tax on the revenue would simply be 30% of the PV of the revenue if there was no delay in tax.
However, because there is a one year delay in tax, all the tax flows are 1 year later than the revenue flows, and so the tax flows need discounting by 1 more year to get back to their present value.
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