Class 5

Question 1

what is a terminal value

Answer 1

anticipated value of an asset AFTER the forecast period (to infinity)

Question 2

what happens to pre tax losses from specific projects for profitable firms?

Answer 2

subtracted in calculation of firms taxable income (this is a good thing, taxable income is being lowered)

Question 3

what can a firm do if it has no taxable income to offset when a project incurs a loss?

Answer 3

the firm can carry the losses forwards or backwards to offset taxable income in other years

Question 4

What is a CCA Tax Shield?

Answer 4

reduction in taxable income by claiming allowed deductions

Question 5

what is sensativity analysis

Answer 5

how does npv change when ONE assumption is changed in the forecast? (how sensitive is the npv)

Question 6

what is scenario analysis

Answer 6

how does npv change when we change multiple assumptions in the forecast (how does the npv respond to this specific scenario)

Question 7

What is the general approach to incorporate the Canadian treatment of depreciation in Canada?

Answer 7

declining balance