Adjusted cash flows - pension

CFA Level II FRA
#1

When contribution > TPPC, it is similar to repayment of a loan. Since that’s an outflow we add the amount to CFF. It would mean increase in CFO, so we add the amount.

How would the reverse treatment be?

When TPPC > Contribution, and we are ‘borrowing’ would it mean an inflow and so we adjust CFF by subtracting the amount? And what about CFO?

#2

I think you have it the other way around. When contribution > TPPC, it’s like paying down the principal component of a loan. So you’d reduce CFF and increase CFO.

When contribution < TPPC, it’s like borrowing. So you’d increase CFF and reduce CFO. If they provide a tax rate, remember to multiply by 1-T.