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DCF TECHNIQUE EG 1

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  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.
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  • January 3, 2020 at 3:13 pm #556786
    firdosh9474
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    HELLO,
    YOUR LECTURES ARE AMAZING AND VERY EASY TO UNDERSTAND. I AM PURSUING CHARTERED ACCOUNTANCY PROFESSIONAL COURSE FROM INSTITUTE OF CHARTERED ACCOUNTANTS IN INDIA ALONG WITH PURSUING ACCA. THIS IS MY FIRST SUBJECT SINCE I HAVE GOT EXMPTIONS IN OTHER PAPERS.

    THERE IS A SIMILAR SUBJECT IN CA THAT IS STRATEGIC FINANCIAL MANANGEMENT. THERE WE HAVE THIS CHAPTER OF CAPITAL BUDGETING WHICH IS SAME AS DCF TECHNIQUE. MY QUESTION IS WHY WE HAVENT TAKEN THE DEPRECIATION FOR FIFTH YEAR. I AM A BIT CONFUSED. SINCE WE HAVE ADONE A SIMILAR SUM IN SFM WHERE WE TAKE THE DEPRECIATION FOR ALL THE FIVE YEARS. THEN THE SALVAGE VALUE IS COMPARED WITH THE EXPECTED SCRAP VALUE TO CALCULATE THE CAPITAL LOSS OR GAIN.

    IF I AM UNABLE TO MAKE MY POINT CLEAR, KINDLY PARDON ME.

    THANKS

    REGARDS

    January 4, 2020 at 8:33 am #556807
    John Moffat
    Keymaster
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    Please do not type in capital letters 🙂

    It is the tax rules that we are following (because it is the tax allowable depreciation that we are concerned with and not the accounting deprecation).

    However the net effect in the final year will be exactly the same whether you charge depreciation in that year or not.

    For more, watch my free Paper FM lectures on ‘investment appraisal with tax’ where I explain in detail (because this is revision from Paper FM).

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