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Hello sir,
Couple of doubts in this question regarding determining dividend capacity(1) Why did they add cash received on disposal of NCA? I know it is a CF but the requirement asks to forecast dividend capacity for a “normal” year . Isn’t disposal of NCA a thing which does not occur frequently? Similarly, the tax paid on profit of disposal of NCA should also have been added right (As we wouldn’t be disposing NCA every year) ?
Have I misinterpreted the term “normal” year?(2) This is just to know whether I’ve understood it right. The taxation amount is calculated after deducting interest. Normally we don’t do that since the tax saved from interest paid is incorporated in the WACC. We are not doing discounting here and so the tax has to be calculated after interest. Have I understood it right?
Kindly clarify these points. Especially the 1st one.
Thanks a lot1. The question does actually state that all of the assumptions relate to what will happen in a ‘normal year’.
3. You have understood it right 🙂 For dividend capacity we need to amount that is available for dividends after charging interest and tax.
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