This is directed at S2000Magician coz I’m not getting any response from Kaplan.
There was a question in Exam 3 in the Schweser Vol1 book where there was a negative after tax cash flow in one of the years for a project. The solution given added back the tax portion whereas I would’ve thought tax would be NIL if there was a loss. So if tax is added back (eg. if negative CF was -$100K add tax of $40K back so net -$60K), this implies that the tax office will refund the tax portion for losses the client makes. What is correct?
I can understand if maybe we assume that the tax losses can be carried forward and used to offset future income but then this would need to be discounted in the future years which will complicate the whole solution (especially in an exam situation).
I could only find one other thread on this a few years ago but need S2000’s ‘magic’.