Q: This question refers to the spreadsheet that we used in our lectures to analyze a New Product Venture. This spreadsheet is titled MODULE 4 – NEW PRODUCT VENTURE – BASE CASE.xls
Suppose the tax rate that the New Product Venture will face changed to 0%. How should we expect the numbers in the spreadsheet to change? (there could be more than one). Note: You don’t have to do any re-calculations with the spreadsheet to answer this, but you can recalculate if you like.
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Q: This query relates to the spreadsheet we utilized to examine a new product venture within our lectures. The name of this spreadsheet is MODULE 4-NEW PRODUCT VENTURE-BASE CASE.xls
Assume that the New Product Venture will be subject to a 0% tax rate. What changes may we anticipate in the spreadsheet’s numbers? (More than one may exist). Note: You can recalculate if you’d like, but you are not required to use the spreadsheet to answer this.
- Present Value of cash flows will be higher
- Tax Expense will be zero
- Sales Revenue will be higher
- Cost of Goods sold will be smaller
Explanation: With no taxes to pay, the venture retains more of its earnings, increasing the cash flows and thus raising the present value of future cash flows. With a 0% tax rate, the income statement will have no tax expense.
