When assets are replaced during the anticipated life of the project, or at the end of the anticipated life of the project, they are sold at their pre-determined scrap values. Income Tax Rate (Including Capital Gains Tax)
Income tax is applied as a single rate throughout the life of the project. (note that for assignment any profit(loss) of sale of assets is taxed in the same manner as ordinary income and not according to the Australian Capital Gains Tax provisions) As the parent corporation has sufficient profits to absorb any losses that may be incurred by the project from year to year there will be no losses to be carried forward and offset against future profits (ordinary or otherwise). As the corporation takes immediate advantage of any tax savings that may be incurred, in the event that the annual net profit(loss) of the project results in a tax saving to the corporation, an amount equivalent to the tax saving is paid into the project account at year end. The company DOES NOT use tax-effect accounting techniques.
Calculations for PAYG deductions (for the company or staff) are not required. The Impact of the Gst For the purposes of this model you should ignore any GST implications.
Project Valuation Method
At the end of each year the project is valued at the Present Value of the annual operating profit (before income tax and interest) of that year, as if it were received each year for the next 5 years.
Net Present Value Rate
The required rate of return and/or discount rate used in Net Present Value Calculations is determined from time to time by the corporations financial advisers. (For the sake of simplicity assume that all the factors (including inflation) that are required to be considered in determining the NPV/Discount rate are reflected in the abovementioned rate).
The average annual inflation rate is calculated over the life of the project.