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sir in this question’s part c)i) I don’t understand why the tax has not been calculated using profit after interest cost? The tax payable on profits should have been (192.3-78.6)*20%=$22.74 this!! but i don’t understand why everywhere the tax amount deducted while calculating operating cash flow is 192.3*20%=38.46$, on what grounds is tax calculated on PBIT???
But that is what we always do in both Paper FM and Paper AFM !!!
We always ignore interest (and the tax saving on the interest) because the after-tax interest cost is included in the calculation of the WACC. To include them in the cash flows as well would be dealing with it twice.
oh yess! am sorry sir for asking such a silly question. Absolute brain fade on my part.
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