For question 2B on Vol. 3, page 429, for the calculation of the P/CFO adjusted for the case where software development was expensed instead of capitalized, the solution simply subtracted the development cost from the cash flow from operations. Why is there no change in taxes paid due to expensing, unlike the calculation for P/E in question 1A? Taxes paid is a part of operating cash flow under US GAAP, unless IFRS is used, but the hypothetical company reports in “$”.
Is it because tax will be paid out in the following year?
Remember tax expense of the financial statements are not necessarily the same as taxes payable…Exhibit 4 does not provide any additional info on deferred assets (loss carry forwards) or deferred liabilities (differing depreciation methods)…and so I’m guessing that’s why CFAI did not include an outflow of taxes payable in the solution for 2B.
could that because cash flow from operation (CFO) has already included tax ? whereas earning is taxed。
Bizzies4bankers is correct.