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In chumura co, part b) i) why is capital allowance not taken as a cash inflow?
They have taken directly the depriciation of MP.125 for every year, but as far as I remember, in f9 we used to take this amount and multiply it with the tax rate (in this question 25%) and get the capital allowance which will be added in the calculations and we will not include depriciation.
There are two ways of dealing with depreciation and tax.
One way s to calculate the tax on the operating flows, and then separately calculate the tax saving on the depreciation.
The other way is to subtract depreciation from the operating flows, then calculate the tax on the profits, and then add back the depreciation because it is not a cash flow.
Both ways give the same answer.
I have uploaded lectures working through the whole of this question. You can find them linked from this page:
https://opentuition.com/acca/afm/afm-revision-lectures/Ohhh okay! So both methods are fine
I prefer the 2nd methodThank you! ?
Just another quick question. When a question states to estimate the value of a project, it basically means to calculate the NPV right?
I tried with the second method but got ($260,000) npv whereas with first method I got ($441,000) npv
Is that an issue ? :/
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