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Hey guys, usually how I treat TAD is that I deduct depr prior to finding the PBT cash flows and then calc. tax, post which I add back the TAD. But in Tippletine, they are not adding back the depr which results in a different NPV. Why is it that they are not adding the TAD back?
We only add back the TAD if it had previously been subtracted in the list of cash flows and the tax calculated in the list of cash flows – that is the way we do it in Paper FM.
However if the tax has been calculated in separate workings then the TAD had not been subtracted in arriving at the cash flows and there is therefore nothing to add back. As I explain in my free lectures it is much safer to do it this way in AFM because there are often tax losses that need carrying forward.
(If there are no tax losses then both ways result in the same answer and would get full marks. In Paper FM there are never tax losses, but there often are in Paper AFM.)
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