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Q1. Why did we not take into consideration of the lost contribution and redundancy cost while calculating NPV!?
Q2. Why was no taxation charged on remittable cash flows ?! Is it because Yilandwe has a higher taxation rare than imoni?
1. Strictly they should be taken into account, but if you read the answer you will see that the examiner has added the following note:
“Lost contribution and redundancy cost
The lost contribution and redundancy costs are small compared to the net present value and would therefore have a minimal impact of reducing the net present value by $0·1 million approximately.”If you had taken them into account then fine – you would obviously still get the marks.
2. Yes – there is a bilateral tax treaty and therefore there would only be tax on the remittances if the tax rate was higher for Imoni (which, as you say, it is not).
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