CFAI and Schweser conflict on the following: NOA (Assets - Cash (and Short Term Investments) - (Liabilities - LTD OR TOTAL DEBT?) also, Accelerating Depreciation in capital budgeting. Both agree that it will lead to a higher NPV -but conflict in saying what the effect will be on After Tax Cash Flows. Any help on either conflict would be much appreciated. All the best
For the depreciation, Are you talking about the sample question where they switch to accelerated depreciation, and the question asks what is the CFAT in year 1? If you are, It’s because the accelerated schedule has the same depreciation method that was originally used.
I know what you mean… but that’s not what I mean… I’ve seen them both explain that Accelerated Depreciation would increase after tax cash flows and I’ve seen that it would decrease. I was sure that both NPV would be higher and After Tax cash flows would be higher
NOA: remember I saw something somewhere and CFAI is ok with LTD or LTD + Current Liabilities if current liabilities is notes payable or something similar. If you Acc Dep, your ATCF will be higher in the beginning years b/c you are adding back a bigger depreciation. Lower in later years with less dep.
Awesome. That’s where I was probably thrown off. Thanks and Good Luck.