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do you add back TAD after operating profit? or should we deduct it before operating profit?
You can either subtract the tax allowable depreciation from the operating cash flows, then calculate the tax, and then add back the tax allowable depreciation because it is not a cash flow.
Alternative (and better) you can calculate the tax on the operating cash flows, and then calculate the tax saving on the tax allowable depreciation.
Although the second approach is easier and quicker, both approaches end up with the same result.
All this is explained in my free lectures on investment appraisal with tax. The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.
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