Rdng 48: Market based valuation and CFO question

on page 463, they are attempting to calculate the cfo, which is given as $4195. however, they subtract 929 because this was a ‘tax benefit of employee stock plans’. Q1: why was this 929 subtracted from the CFO for the adjustment? i am sure that they didn’t do so solely because this was nonrecurring, since they subtracted 307 due to a ‘gain on sale of investment’, but in the adjustment, this 307 wasn’t nullified. also, they add back 49(1-30%) since this 49 was the ‘actual cash interest paid for the year’. This was given on page 461. Q2: was the 49 added back because for CFO adjustments, we always add the post tax interest back? i would have done the adjustment as follows: since 47 was the expense, and 49 was the ‘actual cash interest paid’, i’d subtract an additional 2 from the 4195 (i were to make an adjustment). WHAT’S GOING ON HERE? i guarantee this is going to be on the exam, and it doesn’t make any sense, esp. part 2!!! by the way, the “logic” for removing the 929 was that the “because such tax benefits depend on stock price performance, they many not persist in the future.” so in making adjustments, we want to remove non-recurring items? what about extraordinary items? why didn’t they remove the -307 by adding it back, since this is also nonrecurring? or the special charge of 105?

by the way, the “logic” for removing the 929 was that the “because such tax benefits depend on stock price performance, they many not persist in the future.” so in making adjustments, we want to remove non-recurring items? what about extraordinary items? why didn’t they remove the -307 by adding it back, since this is also nonrecurring?

ignore the shorter of my 2 posts above. the first post contains all the questions, and the second accidentally reiterates.

somebody help me please

My logic when I did that was that since the questions specifically asks for you to adjust CFO for “the ‘tax benefits of employee stock plans’ and for financing effect,” you can ignore the investment income. For your second part, I’m guessing it has something to do with the difference between the actual cash leaving and the accounting figure. You’re trying to get real CFO so you need to use the real cash number. I don’t follow your netting on this part though. T/G