- This topic has 3 replies, 2 voices, and was last updated 11 years ago by
.
- Posts
Hi Sir,
Good MorningI was trying to calculate the PV of tax liability, question 1, c, i – December 2011 Exam Paper. But now I´m struggling with it because is necessary to lag by one year the PV and I do not understand why.
Would you expline why and when is necessary to do so.
Sorry for my english
Regards
ETThe examiners answer has two alternatives (both of which are acceptable) – the first alternative is the better approach (listing all the cash flows, including the tax flows).
However in both cases, the tax flows are one year later than the operating flows – this is because the question says that tax is payable one year in arrears. This is very common in the exam.
It might help you to watch my lecture on relevant costs for investment appraisal where I go through the effect of tax, and the timing of the flows.
(And your English is fine 🙂 )
- You must be logged in to reply to this topic.