ACCA F9: Sensitivity Analysis

mark057

Hello,

I'm in need of some advice about the F9 area of sensitivity analysis.

I'm solid on the basic calculations but have recently come across two questions in my practices which incorporate tax into sensitivity analysis. This is not dealt with in the main tutorial book at al, and I'm finding the methods used confusing in the answers to the questions.

One question asks you to calculate the increase in sales (in units) that would produce a zero present value for a proposed investment. The answer has discounted cash flows for WDA tax allowances, contribution and even working capital. I simply can't understand why this is not explained in the main tutorial text book.

Does anybody know of anywhere I can get some information on this?

Thanks

Mark

SandyHood

Dear Mark
You need to divide the original NPV by the total PV for the contribution (after tax)
The tax allowances on capital equipment and the working capital cash flows are not part of the calculation

Is this from an old exam question?

Yours

Sandy

mark057

Hi Sandy,

Thank you for the response.

I can see what to do with the sales volume calculation with tax. However, another question asked students to calculate the break even point (in sales units) using data from an NPV investment appraisal with tax. The answer was long, complicated and wholly unrelated to the method shown in the main Kaplan tutorial text.

I've looked at my Kaplan revision book and the two questions were never set in a real exam but seem to be Kaplan creations.

I'm not sure if the F9 examiner would ever set a question like that but then again why have Kaplan put in in their books if it is never asked?

My books are the most up to date versions too so no problems there.

I just find it very demoralising to come across techniques not taught in the main text.

Mark