Hi John i have this issue with the Dec 2010 question 2 on adjusted present value, there is an example in Kaplan where tax on issue cost is calculted and deducted from the issue cost to get the final value to be used. But in the solution to the Dec 2010 question no tax was deducted thus i don't which is right.
secondly, when calculating the profit, tax allowable depreciation was deducted but was not added back. i was expecting it to be added back in order to get the net cash flows as it is not a cash flow. can you please clarify me
thank you as usual
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Adjusted prevent value Dec 2010
11y ago#1With regard to issue costs, it is an assumption - provided you state your assumption then you get the marks.
(I personally would never treat the issue costs as being tax allowable)
With regard to the depreciation, it is because the examiner has assumed that the annual reinvestment in plant and machinery required is equal to the depreciation (see his assumption 6). However, he says alternative assumptions are allowed - I would not assume this unless the question specifically said to assume it (which it has done on a few occasions).
so you mean that if a question says annul reinivestment in plant and machinery = depreciation, should we still calculate tax on profit and then later add back the tax benefit on the capital allowance as in your lectures or should we deduct the depreciation figure as it was done in this question
thank you
11y ago#3It the question says that the annual reinvestment is equal to the depreciation, then you do subtract the depreciation figure (because the annual reinvestment is a cash outflow).
The tax itself is dealt with in the normal way.
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