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This is from Q1 June 2015 about Yilandwe.
Why taxable depreciation and tax loss are added back to work out the cash flows for the NPV calculation? But in some other examples, these two items are not added back?
TAD is only added back if it has been subtracted when arriving at the cash flows and when the tax is then calculated in the table of cash flows. When tax has been calculated separately then the TAD has not been subtracted in the table of cash flows and so there is nothing to add back.
In addition, the examiner often stated in questions that an amount equal to the TAD is needed for maintaining operations. In this case although the TAD itself is not a cash flow, there is an equal amount that is a cash flow and so again there is nothing to add back.
Have you watched my free lectures on investment appraisal and foreign investment appraisal, where I do explain both of these points?
Thank you. I tried again and this time calculate the tax separately. I get the difference now.
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