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Sir wanted to clarify in cash flow.
Is it always that we straight away deduct amount of tax and interest from the cash flow,because it’s not mentioned anywhere whether the company has paid for it or not.
We r adding decrease in receivable because we have received money from them is my reasoning correct.
Same for increase in trade payable we r adding as we stopped there payment so our cash is increased.ThanksSir in same question in bpp solution for calculating WACC they have given written
(1-0.027)×10+0.027×5%×(1-.3)=9.82% which formula is that.
Is it correct if i do
(1620×10/1620+45) + (45×5×.7/1620+45)=9.728
Is my answer correct. ThanksIt depends on why you are doing it.
If you are doing project appraisal, then you need the free cash flow to the business – it is the net cash flow before interest and you then discount at the WACC. If the question asks for free cash flow to equity then you need the net cash flow to equity, which is after interest, and then you discount at the cost of equity.
However, this question specifically asks for a cash flow forecast, which is asking you are for “Statement of Cash Flows” (although as the question said – it didn’t need to be in precisely the same layout as the accounting standard (so the various headings are not needed). If you have forgotten what we do in Statement of Cash Flows, then do look back at the free Paper F3 lectures.
Your second question:
Yes – what you have done is fine (the difference is down to rounding and that doesn’t matter)
Dear Sir
Is it true that cash flow statement is part of F3 but no longer part of F9 and P4? I don’t see any recent questions on constructing cash flow statements.
Thanks
Dear Sir
I calculated FCFE/Dividend capacity this way but it is different from the examiner’s solution. Would this method be acceptable?
Profit after tax 74.9
Add depreciation 28
Increase in trade payables 1.1
Reduction in inventory 0.5
Reduction in trade receivables 3.5
Operating cash flow 108.0
Less capex 80
Less loan repayment 10
Free cash flow to equity 18.0F9 and P4 changed their names over a year ago and now are FM and AFM.
Producing a Statement of Cash Flows in IAS format has never ever been in the syllabuses for FM and AFM. However establishing the free cash flow certainly has been (and still is) in the syllabus.
What you have done would get some of the marks, but certainly not all of them.
You have taken the profit after tax, but the tax cash flow is not the tax charged in the SOPL, it is the. tax actually paid (25.6).
Also, the interest is not the interest charged in the account but is the interest actually paid, which is 2.3 (not 1.8) as we can see from the SOFP.
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