Can someone explain why CFO is unchanged if your amortized expense is lowered, for subsequent years.
amoritization is a non-cash charge, hence to affect of CFO thats how I look at it
yeah but reduced amortization, increases your tax liability, hence more tax paid out of CFO. what am i missing here?
could be that your DTL goes up 
therefore no CFO outflow
getterdone Wrote: ------------------------------------------------------- > could be that your DTL goes up could be means what here? I can say, could be that DTL doesn’t go up, and Taxes Paid goes up along with Tax Expense.
your looking at it from the wrong prespective though. The reason why is doesn’t change is because it’s a non-cash charge. When looking at something like this you must look at the variable in question and not look at other variables. You are right in your assumption that it would go up because of income taxes paid, however I take it the question is just trying to test if you know that amort expense is a non-cash charge.
getterdone Wrote: ------------------------------------------------------- > > You are right in your assumption that it would go > up because of income taxes paid, however I take it > the question is just trying to test if you know > that amort expense is a non-cash charge. right in the assumption that CFO would go down, if you pay more taxes. (not up)
sorry my bad
Pepp, where do read CFO is unchanged if the depreciation expense is lowered? That really doesn’t go with how different depreciation methods impact CFO and CFI. We all know that the total cashflow is unchanged.
kochunni69 Wrote: ------------------------------------------------------- > Pepp, > > where do read CFO is unchanged if the > depreciation expense is lowered? > > That really doesn’t go with how different > depreciation methods impact CFO and CFI. We all > know that the total cashflow is unchanged. I read this in a question from cfa text. pg 419 of book 3. q 7, a, iv and 7, b, iii
kochunni69 Wrote: ------------------------------------------------------- > Pepp, > > where do read CFO is unchanged if the > depreciation expense is lowered? > > That really doesn’t go with how different > depreciation methods impact CFO and CFI. We all > know that the total cashflow is unchanged. Depn = no n cash charge, always added back to CFO. Depn will hit the income stmt and the balance sheet (PPE sees different book value if you accelerate depn, for instance)
MACRS depreciation is used for tax purposes. Changing depreciation purposes for financial reporting does not affect depreciation for tax purposes so it wouldn’t affect taxes paid and, therefore, CFO.