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Metis (June 2012, Question 1)

Ccheah7y ago
Dear tutor, 1)In the workings, why interest is excluded in the computation of tax for cashflows? (Why 9,360 is used instead of 540?) 2)Is free cash flow the positive difference of cash in-flows minus cash out-flows?
kengarrettkengarrettTutor7y ago#1
Because these figures are being used eventually for an NPV calculation, interest is ignored (as always) and so will any tax on interest. Interest etc is handled by the act of discounting. So, if PBIT is 31,200, tax will be 30%, ie 9,360. 540) was the tax on the profit after interest. The free cash flows for DCF will be inflows less inflows less tax and before interest.
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