Hi all, so I came across this question in schweser, got it right but confused:
Vol 1 exam 2 Q100
Baragutti is most likely to suggest adjusting the cash flow used by the board as a basis of its valuation by: (CF here is referring to operating CF)
A is wrong
B. decreasing it if employer contributions are lower than TPPC
C. increasing it if employer contributions are higher than the TPPC
Answer is B, but isn’t C is also correct lol? if Contribution > TPPC then we add to CFO and reduce same amount in CFF, on the other hand when contribution < TPPC, we remove the after tax short fall from CFO and add the same amount to CFF.
Guess what, funny enough in same book exam 3 Q90 requires u to do the adjustment in an over contributed situation. Contribution 5000 - 4250 TPPC = 750 . answer is increase operating CF by 750 and decreasing CFF by the same amount.
For for the help :]