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Sir there is some inconsistency in the question
1) in Yilandwe jun15 , tax depreciation and tax loss have been added back but in tippletine marjun18 they were not added back in the cash flow. I am really confused and i really need your help. There are other question that do add and dont add..
2) why dont we add interest cost in APV? Is it because it is base case NPV?
3) for NPV we add interest cost if it is fcf to equity and discount using equity cost and if it is fcf to firm we dont deduct interest and discount using Wacc. Is this correct and applicable in both investment appraisal and business valuation?
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ok there are two methods to calcualte tax allowance.. and how do we distinguish them? how do we know when to use what?
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After searching all of past opentuition past question and your answer I think i got it…
1) it is just presentation difference. one is showing in the face of cash flow and other is to show just Tax payable only, and show working separately. Am i correct?
2) In AFM what is formula for operating cashflow? is it “sales – VC -FC – tax”?
3) do we add interest cost in APV for calculating base case NPV? where do we show outflow of cash due to interest payment?
4) for NPV we deduct interest cost if it is fcf to equity and discount using equity cost, and if it is fcf to firm we dont deduct interest and discount using Wacc. Is this correct and applicable in both investment appraisal and business valuation?
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5) what is the reason for not including loan repayment in Cash flow? (tippletine marjun18) loan borrowed was invested and is included but not repayment included. is it because repayment is not relevant cash flow?
My apology for asking too many question… sorry sir
1. Correct
2. Yes
3. We calculate the base case NPV as though the project is entirely funded by equity. We do not show the outflow of interest payments anywhere – it is Modigliani and Miller and so we add on the tax benefit associated with the borrowings to arrive at the APV.
4. Correct
5. We never include either the receipt of a loan or the repayment of loans in the cash flows.Please watch my free lectures because everything you have asked is explained in my lectures (or is revision from FM and explained in my free Paper FM lectures). I am worried that you are trying to study for the exam just by looking at past exam questions. That will not work for Paper AFM – you need to study first, either by watching the lectures or by using a Study Text from one of the ACCA approved publishers.
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Thank you so much sir.
I have study book and i watched your lecture for areas i dont understand but wanted to clarify things..
thank you sir
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