Reading 16 Example 4

CFA Level II
#1

Hello everyone,

I have a question about Reading 16 Example 4 and hope, someone will help me.

In the 1 case, part B we should calculate P/CFO with no adjustments and than determine which kind of impact will the ratio have, if the company expensed rather than capitalized.

Changing the methode, will make operating income smaller and therefore income taxes will be smaller too. Income taxes are part of operating cash flow. In the answer there are only adjustments regarding to the software development expenses made and nothing about changed income tax and is it right?

Thank you a lot in advance.

#2

Yes you are right, but I feeel we do not have information on Interest Expense to really arrive at the right Taxes paid.

If we would have that we could have determined the new taxes on the adjusted EBIT.

any more clarification from other memebers is welcome.