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hello
i am surprised that depreciation is deducted in order to get free cash flows. I understand you deduct it to get tax, but then should it not be added on again?
If you read the last line of the paragraph headed ‘Addition financial information’ in the question, it says “The annual reinvestment needed to keep operations at their current levels is equivalent to the tax allowable depreciation.”
So although the depreciation itself is not a cash flow, the reinvestment is a cash outflow. So there is no need to add back the amount and then subtract the same amount.
The current examiner does this very often.
Thank you. i would have missed that every time.. But he has to say what he siad in the last line for it to remain deducted
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