friend.....mujhe cap budgeting me dep & tax ka treatment samaj nahi a ra.....sumtimes it adds after calculating PAT........SUMTIMES IT IS ONLY DEDUCT FROM PROFIT BEFORE DEP & TAX.....sumtimes it is of no use in the ques......plzz clear ma quesry....
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Capital budgeting
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there are two ways of calculating Cash Flows After Tax(CFAT)
1) CFAT==PAT+Depr
2)CFAT==CFBT(i.e.before depr & taxes)- tax liability
for example
CFBT----100
- depr--- (10)
PBT --- 90
- tax @ 50%--(45)
PAT 45
1) CFAT==45+10==55
Or
2) CFAT==100-45==55
if there is no tax then deprctn will be ignored. U can also apply the tax percentage on deprctn n then deduct it from cfat.
There are two aspects.If the question says to calculate cash inflow then dep n tax liab will be deduct from pat n another aspect is , if question sasy to calculate cash outflow then dep n tax liab will be added .
DEP IS USED TO TAKE TAX BENEFIT
1. ADD & LESS
2.NOT ADD TAKE TAX BENEFIT
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