Tax cash flow
Appraisal includes incremental cash tax at the time it is paid or recovered. Start from the tax treatment specified in the question, which may differ from accounting profit: accounting depreciation is commonly replaced by tax-allowable depreciation. Check tax rates, loss relief, the availability of deductions and payment delays. A tax loss does not necessarily create an immediate refund. Financing-related tax savings should not be counted both in project cash flows and in an after-tax discount rate or separate APV financing adjustment. Actual tax treatment depends on jurisdiction and period.
Worked example
Taxable operating profit before capital allowances is $50,000 and the usable capital allowance is $20,000. At an illustrative 25% tax rate, cash tax is ($50,000 − $20,000) × 25% = $7,500. If payable one year later, discount from that payment date.
Common mistake
Placing the tax payment in the operating-profit year without checking an explicit one-year payment delay.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AFM | Direct | September 2026–June 2027 |
| ACCA | FM | Direct | September 2026–June 2027 |