《MPAcc财会专业英语》.pdfVIP

Chapter 27 (P567-580) Allowing for inflation and taxation Topic list (P567) • 1 Allowing for inflation • 2 Allowing for taxation Introduction (P567) Inflation Taxation money rates of return and real rates of return Study guide (P568) Section 13- Interest and discounting Section 15 – Project appraisal allowing for inflation and taxation • Exam guide (P568) 1 Allowing for inflation (P568) • Inflation is feature of all economies, and it must be accommodated in financial planning. • (1+money rate of return)=(1+real rate of return) * (1 + rate of inflation) • Real cash flows • Money cash flows • 1.1 Example: Inflation(1) (P568) • 1.2 Do we use the real rate or the money rate? (P569) • (a) if the cash flows are expressed in terms of the actual number of pounds that will be received or paid on the various future dates, we use the money rate for discounting. • (b) if the cash flows are expressed in terms of the value of the pound at time 0,we use real rate. 1.3 The advantages and misuses of real values and a real rate of return (P570) • (a) real values are the same as current day values, so no further adjustments • (b) real return • • 1.3.1 Costs and benefits which inflate at different rates (P570) 1.4 Example: Inflation(2) (P570) • 1.4.1 Variations in the expected rate of inflation (P571) 1.5 Example: Inflation(3) (P571) • 1.6 Expectations of inflation and the effects of inflation (P572) • (a) increasing amounts • (b) higher selling prices; not be easy to predict • (c) gearing; cost of capital 1.7 Mid-year and end of year money values(P572) • 2 Allowing for taxation (P572) • Taxation is a major practical consideration for businesses, it is vital to take it into account in making decisions. • In investment appraisal, tax is often assumed to be payable one year in arrears. • Capital allowances det