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Investment decisions - Discounted payback method
Financial Management
If the question mentions the earnings before tax, should we consider it as CFAT and directly multiply with PVF or should we take that as PAT, add the depreciation back and then proceed with calculations. Kindly explain. In video 34. Illustration 15- Replacement, Earnings after tax are taken directly as CFAT because above the table the words "cash in-flows" are given, but what if without that only "earning after tax" is mentioned.
Answers (8)
Best Answer
Thread Starter
Aswin Chandar@Moderators Please clarify. Thanks.
In this question icai used Cash flows and EAT interchangeably - ideally that is not the case. In exam it is very unlikely that they will make such mistakes. They will mention PAT, Dep, Int and tax each independently so that you can compute CFAt or they will give CFAT directly - but am sure they will not make such mistakes of calling same set of numbers as both CFAT and EAT. If they do so, make an assumption that you think is right and move forward.
Renu Madhav
In 1st para, if tax rate is not mentioned then Ebt be a EAT/PAT. and then multiply with pvf and then again add back dep. and then proceed with calculations.
In 1st para, if tax rate is not mentioned then Ebt be a EAT/PAT and then add back dep. after that multiply with pvf. 1st time is wrong, typing mistake
Renu Madhav
As you asked question above,for that we should take, PAT and add back dep. and multiply with pvf only not with Ebt directly, if tax rate is not given then Ebt will be treat it as a EAT/PAT and do same process as said above.
Thanks a lot for your efforts but I know this already. My question was if we should consider EAT as CFAT provided the words "cash in-flows" is not given in the question stated above. The reason I got confused is because in the aforesaid lecture @04:08 minutes, sir explained "whenever the terminology is Earnings after tax, that directly means the given values are cash flows after tax".
