Example 6

1 2 3 4
US TP $m 100 120 130
US Tax @ 25% -25 -30 -32.5
US NCF $m 100 95 100 -32.5
FX Rate 2.20 2.42 2.66 2.93
UK CF Remitted £ 45.45 39.26 37.57 - 11.10
UK Tax - 2.07 - 2.25 - 2.22
UK NCF £ 45.45 37.19 35.31 - 13.32
DF @ 10% 0.909 0.826 0.751 0.683
DCF 41.32 30.74 26.53 - 9.10 89.49

Additional Tax = 5% (30% - 25%)

$ M @ 5% -5 -6 -6.5
FX Rate 2.42 2.66 2.93
Converted to £ M - 2.07 - 2.25 - 2.22

US Tax = 25%
UK Tax = 30%
Due to Tax Treaty - Stella only pays 5% in UK as 25% already paid in US
 Example 7 - Page 90
0 1 2 3 4 5
$ Contribution 3,000 6,300 6,615 6,946
$ Fixed Cost - 1,000 - 1,050 - 1,103 - 1,158
$ Royalty - 316 - 614 - 597 - 581
$ NTR 1,684 4,636 4,915 5,207
$ Tax (W1) - 397 - 1,291
$ Investment - 15,000 - 1,000
$ Residual Value 8,000
$ Working Capital - 4,000 4,000
$ NCF - 19,000 684 4,636 4,915 16,810 - 1,291
FX Rate 1.300 1.264 1.229 1.195 1.161 1.129
£ Remitted Funds - 14,615 541 3,773 4,114 14,473 - 1,144
£ Additional Tax 10% - 171 - 572
£ Royalty 250 500 500 500
£ Tax on Royalty 30% - 75 - 150 - 150 - 150
£ Final UK Cash Flow - 14,615 791 4,198 4,464 14,653 - 1,866
£ Discount Factor 13% 1 0.885 0.783 0.693 0.613 0.543
£ DCF - 14,615 700 3,287 3,094 8,987 - 1,013

NPV 440

Workings 1 2 3 4
Selling Price 100.00 105.00 110.25 115.76
Variable Cost 40.00 42.00 44.10 46.31
Contribution Per Unit 60.00 63.00 66.15 69.46
Units 000's 50 100 100 100
Total 3,000 6,300 6,615 6,946

FX Rate $ per £ 1.300 1.264 1.229 1.195 1.161 1.129

Royalty Per Unit £ 5 5 5 5

Total £ - Revenue in Uk 250 500 500 500

Total $ - Cost in US 316 614 597 581

Tax Allowable Depreciation

Opening Balance 16,000 12,000 9,000 6,750
25% WDA 4,000 3,000 2,250
Residual Value 8,000
Final Year Bal Charge - 1,250

NTR $ 1,684 4,636 4,915 5,207

TAD - 4,000 - 3,000 - 2,250 1,250
Taxable Profit - 2,316 1,636 2,665 6,457
Loss Relief 2,316 - 1,636 -680 0
Revised TP - - 1,985 6,457
Us Tax @ 20% 397 1,291

UK Tax @ 10% 198.52 645.74

Loss Memo
Year 1 Loss 2,316
Year 2 Relief - 1,636
680
Year 3 Relief - 680
-
 50,000.00 100,000.00 100,000.00 100,000.00

0 1 2 3 4 5
NCA -15,000.00 -1,000.00
WC -4,000.00 4000
Revenue 5,000.00 10,500.00 11,025.00 11,576.25
VC -2,000.00 -4,200.00 -4,410.00 -4,630.50
Royalty Cost -315.97 -614.39 -597.32 -580.73
FC -1,000.00 -1,050.00 -1,102.50 -1,157.63
RV 8,000.00
US TAX 0 0 0 0 -396.96 -1291.4787 w1
CF from Us in UK -14,615.38 541.21 3,772.53 4,114.33 14,473.49 -1,143.71
Additional Tax 0 0 0 0 -170.88901 -571.85532 w2
Royalty Revenue 250 500 500 500
Tax on Royalty -75 -150 -150 -150
Final UK CF -14,615.38 791.21 4,197.53 4,464.33 14,652.60 -1,865.57
CC 13.00%
DF @ 13% 1 0.884955752 0.7831467 0.6930502 0.6133187 0.5427599
DCF -14,615.38 700.18 3,287.28 3,094.00 8,986.72 -1,012.55
NPV 440.25

FX rate 1.3 1.263888889 1.2287809 1.1946481 1.1614634 1.1292005

w1 TAD
Y1 16,000.00 4000 800
Y2 12,000.00 3000 600
Y3 9000 2250 450
Y4 -1250 -250
0 1 2 3 4 5
US TAX -336.81 -927.12 -983.04 -1,041.48
US TAD 800.00 600.00 450.00 -250.00
Total: 0 0 0 0 -396.96 -1,291.48

w2 Additional Tax @10 % -168.4028 -463.561 -491.5176 -520.7393

TAD 400.00 300.00 225.00 -125.00
Total: 0 0 0 0 -198.48 -645.74