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Hi sir,
I just looked at the question of Metis ,June 2012 exam . I don`t understand how has been calculated the Tax on operating cash flows and Free cashflows, on page 16 of the exam paper.
Thank you
PBIT = 31,200
Tax rate = 30%Tax on PBIT = 30% x 31,200 = 9,360
Free cash flows = PBIT – TAX + Depreciation (not a cash flow) = 31,200 -9,360 + 120,000 = 141,840.
We need to get the the figure before any interest payments or tax relief on interest. Discounted cash flow is applied to pre-interest cash flows.
Hi Ken,
May i know how to derive Terminal values of returns from the project to date?
2010 – 154,892
2011 – 271,392
2012 – 303,626Thanks
Jessie
I must confess I have never been happy with the main part of the model answer. Concentrate on the tutor note coming afterwards:
[Tutor note:
The NPV calculation if done for the start of project, would read –
NPV: Consider the business as a three-year project to date based on an initial investment of $600,000
2010 2011 2012
PV as at start of project at 12·5% 126,080 205,199 213,246 gives a total of $544,525
Hence NPV at start of project = $–55,475
This yields similar comments as in the model solution.]
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