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HI Tutor
WHAT ADJUSTMENT DO WE DO IF WE ARE TOLD THAT ” it can be assumd that the amount of taxallowable depreciation is the same as the investment needed to maintain Company operations”You have asked this also as a comment on the first lecture on Investment Appraisal. However why have you not watched the other lectures on this chapter of the lecture notes, because I explain this very point when I work through example 4 in the notes?!!!
We subtract the TAD from the operating cash flows and calculate the tax payable. We do not then add back the depreciation as we normally would because although it is not a cash flow there is an equal cash outflow needed to maintain operations.
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