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Dear Sir
I refer to the above question and believe the answer sheet is wrong.
Book answer shows PBDIT
he then deducts the 1.5 from C sales and suddenly calls it PBIT
I believe this is a mistake and if it was PBIT he would have to add back depreciation and then deduct tax. I believe 20% tax should be deducted off the 13.46 and then after that the 3.93 depreciation deducted because of the reinvestment
The D in PBDIT being depreciation
The FCF being 6.84 and not 7.62
I refer to your ch.16 notes as referenceIf i am right it means I have a good grasp of this, if not i am turning to booze
Regards
Richard Scully
Tax is calculated on the profit after subtracting tax allowable depreciation (that is why it is called tax allowable depreciation 🙂 )
What you might be confusing it with is that what we often do (for ease) is calculate the tax on the profit before depreciation, and then calculate the tax saving on the depreciation. However the net effect is the same as calculating the tax on the profit after depreciation.
Hi John
Value created from combined company
($126·56m + 0·5 x $23·0m x 0·8 + $7m) x 10·35 = $1,477·57Where does the 0.5 figure above come from?
Thanks.
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