2019 Fall (15) part d (Mini Battle Quiz 1)
d) Calculate the estimated effect of discounting the asset for future income taxes.
Ans:
RR = APV Net = 84,325
[RR - 95%(min(RR, APV)](tax rate)(1-PVFactor(2.5%)) = (84,325-95%(83,425)0.36(1-0.9782)
how is it that min(RR, APV) = 83,425 when RR = APV Net = 84,325. What am I missing here?!
Comments
It's an error in the examiner's report. Here's what it should be:
They reversed the 4 and the 3 and that's how they got 83,425. If you do the calculation as given in the examiner's report, you get 39.99 (which is wrong) instead of the correct answer 33.25. In other words, their final answer is correct but the line right before the final answer has wrong value for min(RR, APV)
I will make a note of this.
Is this type of question still on syllabus? Somehow I missed it. Just the one formula to memorize?
Yes, but it is not in the CIA.MfAD reading. It's in the CIA.Taxes reading here:
CIA.Taxes is a low-ranked reading overall, but it does have 2 specific questions that have been asked multiple times on past exams. Have you used the Top Questions feature on the Main Page? (second link in the Custom Battles box.) Here's the direct link:
If you view exam questions that have appeared 8 times, you will see this question on the effect of discounting on future income taxes. You definitely need to know how to do this!