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Hi Sir
About Nopat
I don’t understand why interest
23 x25% is deducted
I thought it will add back 23×75%The answer starts with operating profit before tax and interest. We are aiming to get to NOPAT, operating profit after tax.
Tax is normally calculated after interest so the interest receives tax relief. If there were no interest tax would be higher by the amount of the tax relief on the interest.
Therefore, Stillwater’s tax would be higher by the amount of tax relief on the interest ie 23 x 25%. If tax is higher NOPAT is lower so this amount has to be deducted for NOPAT.
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