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VOGEL CO (JUN 14)

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › VOGEL CO (JUN 14)

  • This topic has 4 replies, 3 voices, and was last updated 1 year ago by John Moffat.
Viewing 5 posts - 1 through 5 (of 5 total)
  • Author
    Posts
  • December 1, 2022 at 6:50 am #672999
    thanh123
    Participant
    • Topics: 44
    • Replies: 30
    • ☆☆

    Hi tutor, I have a question_Vogel Co (Jun 14).

    Question: Note (vi): “claim 10% tax allowable depreciation on its non?current assets. It can be assumed that the amount of tax allowable depreciation is the same as the investment needed to maintain Ndege Co’s operations”.

    I think that the tax allowable depreciation should be plus rather than less and its position should be under tax. Please, explain why the answer has deducted the tax allowable depreciation.

    Thanks tutor a lot

    December 1, 2022 at 7:43 am #673005
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    I explain this in my free lectures because it is something that the examiner write in most investment appraisal questions. Have you watched the lectures?

    Although the TAD is not a cash flow (and therefore if it has been subtracted to calculate the tax, it would then we added back), there is the same amount spent on maintaining the assets and this is a cash flow. So there is no need to add it back.

    December 3, 2022 at 2:32 pm #673233
    thanh123
    Participant
    • Topics: 44
    • Replies: 30
    • ☆☆

    It is clear, thanks tutor a lot.

    January 20, 2024 at 2:49 pm #698693
    adam.sheehan
    Participant
    • Topics: 2
    • Replies: 3
    • ☆

    Hi John / Tutor, In this question it says that Ndedge (Department B) will retain the 7 unsecured bond.
    Why is this not included in the valuation for T0 free cashflow.

    I am using the free cashflow to the firm approach to value department B

    I adjusted PBITD to $13.46m
    I have included the TAD of $3.93m

    The solution dose not include a finance cost of $2.8m (Interest on the bond of 7% by $40m) to arrive at the PBT why is that?

    Thanks,
    Adam

    January 21, 2024 at 10:23 am #698734
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    When using the free cash flow model we take the cash flow available to all investors (equity and debt) and discount at the WACC. The interest (and the tax saving on the interest) is accounting for in the calculation of the WACC.

    Have you watched my free lectures on this?

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