Good evening Sir,
I'm going through the first question of Sep/Dec 2021 exam Zhichi.
In the investment appraisal I don't understand why, in the solution, once calculated the TAD in order to calculate the taxable Cash flow and then the taxation of 20%, then they don't add back the capital allowance?
Shouldn't we deduct the tad and then add back the values after having calculated the taxes?
Thank you in advance
Zhichi Co - Sep/Dec 2021 )Investment Appraisal
4y ago#1In Paper FM we do always add back the TAD because it is not a cash flow.
However the Paper AFM examiner assumes (and usually actually states in the question) that an amount equal to the TAD is needed for the maintenance of the non-current assets. On this assumption, there would be a cash outflow equal to the TAD being added back - the net result being that there is no need to add back. I do stress this point in my free lectures on investment appraisal for AFM.