taxation

    Cards (34)

    • What is the impact of taxation on capital investment projects?

      Taxation affects the viability of capital investment projects.
    • Why are taxation payments and savings relevant in a DCF analysis?

      They are cash flows associated with the project that need to be considered.
    • What are the two impacts of taxation that need to be dealt with in capital investment projects?

      • Corporation tax (PAYMENT)
      • Capital allowances (tax depreciation) (RECEIPT)
    • What is typically assumed about the corporation tax rate in investment appraisal?

      The rate of tax will be given in the question.
    • How should net cash flows from a project be treated for taxation purposes?

      They should be considered as the taxable profits arising from the project.
    • Why is depreciation not an allowable deduction for corporation tax?

      It may be necessary to make adjustments for depreciation.
    • When is corporation tax typically payable?

      Corporation tax may be payable in the year following the one in which taxable profits are made.
    • What do capital allowances allow companies to do?

      They allow companies to write off the cost of their assets to reduce company tax.
    • How are capital allowances treated in relation to taxable profits?

      They are used to reduce taxable profits, leading to a reduction in tax payments.
    • What is the capital allowance rate for plant and machinery in this module?

      25% on a reducing balance basis.
    • What is a balancing allowance or charge?

      It is an adjustment made when the selling price of an asset differs from the reducing balance amount.
    • When do companies receive the benefit of tax saved due to capital allowances?

      They receive it when the corporation tax should have been paid, often one year in arrears.
    • How much did GlaxoSmithKline invest in the UK for a new factory?

      £500 million.
    • What was the expected outcome of GlaxoSmithKline's investment?

      It was expected to create up to 1,000 jobs.
    • What is the expected opening year for GlaxoSmithKline's new factory?

      2020.
    • How does the tax cut influence GlaxoSmithKline's decision to invest?

      The decision was influenced by tax cuts confirmed in the Budget.
    • If an asset is purchased for $50,000 and sold for $10,000 after four years, what is the initial cost?

      $50,000.
    • What is the capital allowance for Year 1 if the asset's initial cost is $50,000?

      $12,500.
    • What is the total capital allowances for the asset purchased for $50,000?

      $40,000.
    • What is the corporation tax rate used in the Lipgloss PLC example?

      30%.
    • How is the tax saved calculated for Lipgloss PLC due to capital allowances?

      Tax saved is calculated as capital allowances multiplied by the corporation tax rate.
    • What is the difference in tax effects between Lipgloss PLC and I Spy Ltd?

      Lipgloss PLC benefits from capital allowances, while I Spy Ltd does not have any capital allowances.
    • What are the key timings of cash flows and capital allowances in investment appraisal?

      • Cash flows occur at specific points in time (Ts).
      • Years represent periods of time.
      • Cash flows may slip one year due to tax payment timing.
    • What is the initial investment for His 'n' Hers PLC's new piece of machinery?

      $100,000.
    • What is the net cash flow generated by His 'n' Hers PLC's new machine each year?

      $30,000.
    • What is the cost of capital for His 'n' Hers PLC?

      5%.
    • What is the total capital allowances for His 'n' Hers PLC's machinery?

      $80,000.
    • What is the NPV of the project for His 'n' Hers PLC?

      $12,791.
    • What is the initial cost of the investment for Sleeper Ltd?

      $40,000.
    • What is the total capital allowances for Sleeper Ltd's machinery?

      $21,000.
    • What is the residual value of the machinery for Sleeper Ltd?

      $19,000.
    • What is the corporation tax rate for Sleeper Ltd?

      30%.
    • What is the capital allowance rate for Sleeper Ltd's machinery?

      25% on a reducing balance basis.
    • What are the key learning points regarding taxation and capital investment projects?

      • Corporation tax impacts cash flows.
      • Capital allowances affect tax depreciation.
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