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1) Why 23 is used for dep a earnings why not (23+10.1)?
2) Why interest is not subtraced to calculate free cash flow for B and why TAD is not added back in the same?
3) How maximum value created came 64.9%?Sorry – I did actually answer it but for some reason my answer disappeared!! (I was on a train in a foreign country at the time which could be the reason 🙂 )
1. The earnings used in calculating PE ratios are the profits after interest and after tax.
2. Free cash flows to the firm are always before interest. (It is only when calculating free cash flows to equity that we subtract interest). I do explain this in my lectures.
TAD is only added back is it has been subtracted. Here it has not been subtracted in arriving at the cash flows and so there is nothing to add back. The tax has been calculated as separate workings.3. I really don’t know and am not wasting time on it either 🙂 The figure is not required and there were not marks given for it 🙂
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