TAD in calculating FCF to firm

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February 20, 2017 at 6:56 am #373255
vapiano91
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hi sir!
in exam questions i have noticed two types of treatments for calculating FCF to firm wrt TAD/depreciation
1) when TAD is given, they usually reduce it from the after tax profit assuming the replacement per yr is at the same rate
2) when depreciation is given, they assume the same thing.
So is it always a rule to deduct depreciation from after tax profits to arrive at FCF’s on the assumption that these are the asset replacement costs? or is it only when it has specifically been told?
February 20, 2017 at 7:20 am #373263
John Moffat
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The current examiner always does it (previous examiners did not).
But as always, state your assumptions – if you have stated your assumptions then you will still get the marks. (Do though make the assumption about replacement unless specifically told different 🙂 )
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