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【正文】 c. 38 CU7010598KRA Step 6 Tax Impact of Interest Ine/Expense Where to find: Process: Comment: Calculate from ine statement Interest ine/expense x Effective tax rate = Tax impact of interest ine/expense Cash Flow ? Since interest ine/expense is a result of financing decisions, the tax impact of interest ine/expense must be removed from the operating cash flow and included in the financing cash flow ? The effective tax rate = ? The tax impact of interest ine/expense will be offset by Step 9 of the financing cash flow Provision for ine taxes Ine before taxes bc BOS Copyright169。 1998 Bain amp。 Company, Inc. 39 CU7010598KRA Cash Flow Step 6 Tax Impact of Interest Ine/Expense Answer Effective tax rate = Provision for ine taxes Ine before taxes $ $1, = % = Interest expense X Effective tax rate = Tax impact of interest expense $ X % $ The tax impact of interest expense is subtracted from operating cash flow because interest expense results from financing decisions, not operating ones. bc BOS Copyright169。 1998 Bain amp。 Company, Inc. 40 CU7010598KRA Cash Flow Operating Cash Flow Calculation Profit before interest and tax $ $ ($) ($) ($) $1, $1, The New England Razor Company’s cash flow from operations is $1,. = Cash Flow from Operations + Depreciation expense for the year + Other noncash expenses Increase in working capital Taxes paid Tax impact of interest expense bc BOS Copyright169。 1998 Bain amp。 Company, Inc. 41 CU7010598KRA Cash Flow Investing Cash Flow *Cash is defined as cash plus marketable securities minus shortterm notes **I/S = ine statement, SCF = statement of cash flows, B/S = balance sheet + +/ +/ +/ = 1. Profit before interest and tax (PBIT) 2. Depreciation 3. Other noncash expenses/ine 4. Decrease/increase in working capital (excluding cash) 5. Taxes paid 6. Tax impact of interest ine/expense Operating cash flow = 7. Capital expenditures Investing cash flow +/ +/ +/ +/ +/ = 8. Interest ine/expense 9. Tax impact of interest expense/ine 10. Increase/decrease in longterm debt 11. Increase in outstanding stocks/shares 12. Dividends 13. Changes in other accounts Financing cash flow 14. Reconcile with change in cash* from Balance Sheet Net cash flow Source** I/S SCF, B/S and Notes Notes B/S I/S, B/S I/S I/S I/S B/S B/S B/S, I/S B/S SCF, B/S and Notes SCF, B/S and Notes bc BOS Copyright169。 1998 Bain amp。 Company, Inc. 42 CU7010598KRA Cash Flow Step 7 Capital Expenditures Where to find: ?Statement of cash flows or calculate from balance sheet and notes ?If SCF is unavailable, use one of the following two methods to calculate capital expenditures: PPE, at cost, at end of year PPE, at cost, at start of year + Original cost of PPE sold during year Proceeds from sale of PPE = Capital expenditures Net PPE at end of year Net PPE at start of year + Depreciation expense + Loss from sale of assets = Capital expenditures Process: ?Obtain capital expenditures number from SCF ?Balance sheet alone is insufficient to determine capital expenditures due to plications caused by asset sales ?Purchase and sale of assets – if assets are directly related to recurring operations, ., PPE, include in capital expenditures – if assets are not directly related to recurring operations, include in financing cash flow Comments: Method 1: Method 2: bc BOS Copyright169。 1998 Bain amp。 Company, Inc. 43 CU7010598KRA Cash Flow Step 7 Capital Expenditures Answer (p. 1) + = PPE, at cost, at end of year PPE, at cost, at start of year Original cost of PPE sold during year Proceeds from sale of PPE Capital expenditures ($6,)MM ($)MM $1, $7, (from Note 3) (from Note 1) (from Note 3) (from Note 1) Capital expenditures decrease investing cash flow. + + = Net PPE at end of year Net PPE at start of year Depreciation expense Loss from sale of assets Capital expenditures ($4,)MM $ $ $1, $5, (from B/S) (from Step 2) (from Note 3) (from B/S) $ bc BOS Copyright169。 1998 Bain amp。 Company, Inc. 44 CU7010598KRA Cash Flow Step 7 Capital Expenditures Answer (p. 2) Capital expenditures can be calculated from the Balance Sheet and Notes. P PE ( end ) PP E (s tar t ) O rigi na l c os tof P PE s ol dP rocee ds f r oms al eC apita lex pen di tures$7 , 82 0. 4M M($6 ,8 85 .0M M )$2 44 . 0M M( $40 .9M M )$1 , 13 8. 5M M02,0004,0006,0008,000Millions of Dollars+ = bc BOS Copyright169。 1998 Bain amp。 Company, Inc. 45 CU7010598KRA Cash Flow Investing Cash Flow Calculation Cash flow from investing ($1,)MM Capital expenditures ($1,)MM The New England Razor Company has a cash flow from investing of ($1,)MM. bc BOS Copyright169。 1998 Bain amp。 Company, Inc. 46 CU7010598KRA Cash Flow Financing Cash Flow *Cash is defined as cash plus marketable securities minus shortterm notes **I/S = ine statement, SCF = statement of cash flows, B/S = balance sheet + +/ +/ +/ = 1. Profit before interest and tax (PBIT) 2. Depreciation 3. Other noncash expenses/ine 4. Decrease/increase in working capital (excluding cash) 5. Taxes paid 6. Tax impact of interest ine/expense Operating cash flow = 7. Capital expenditures Investing cash flow +/ +/ +/ +/ +/ = 8. Interest ine/expense 9. Tax impact of interest expense/ine 10. Increase/decrease in longterm debt 11. Increase in outstanding stocks/shares 12. Dividends 13. C