[jeff]

Welcome to the Q2 2016 CPA Exam Study Group for BEC.

Some BLITZ videos to help your exams: https://www.another71.com/ninja-blitz

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[Larry]

Hi guys, I'm scheduled a month away from today. Currently trending at 75% using NINJA and I studied Becker. IT is killing me on NINJA. There's more stuff on NINJA that Becker did not have so that's bringing my score down. Also, need some work on economics. Although, its very interesting, there's a lot of concepts to grasp.

I'm digging in to review all 6 chapters in Becker. Best of luck to everyone. I'll try to post some questions that I was stumped on.

REG - 82
FAR - 78
BEC - 76
AUD - 8/27/16

[Anonymous]

@ MaLoTu and Papogator24 Good luck!!! You will get it done. I had to take BEC 3 times and I was getting very frustrated but I got it the third time thanks to Ninja! I got my licensed approved March 23 and my ceremony is April 23! It will get real when I have the big license degree in my hands!!! If you failed just keep trying, I only passed REG on my first try and I was I took FAR for the second time on the date that I would've lost REG but got an 84! You just need to think on how much better your life will get once you are done!!!
REG:77
BEC:73/74/81
AUD:58/76
FAR:74/84
Licensed March 23rd!!!!

Good luck at everybody on this group too!!!

[MaLoTu]

Thanks, Agus! I really hope I got it this time. I only passed REG on the first try, as well! Lol. I have until the end of Novemeber until I lose credit for any part. Thanks for the well wishes! I am into FAR now…

[Anonymous]

@MaLoTu, you are welcome! You got it this time!!! Almost there!!!

[Larry]

Thanks Aguspesci…I remember you from the Reg discussions. So glad you are over with it. I'm hoping to be one and done with both BEC and AUD, I have until February 2017 to lose credit for REG. I'm going hard in the paint for BEC next month and AUD in Aug.

REG - 82
FAR - 78
BEC - 76
AUD - 8/27/16

[jonnybgood2321]

I have a capital budgeting question…
if a machine has a useful life of 6 years and a salvage value of 7k, when calculating the depreciation shield, should you include the depreciation tax shield in the final year? or is it excluded because technically the asset is sold and isn't depreciating anymore? I feel like some questions I come across use the final year and some don't.

AUD-PASS
BEC-
FAR-
REG-

[jessica8926]

@jonnybgood2321: In my Becker studies they do not take the tax shield for depreciation in the last year. To your point when the asset is sold no depreciation is happening therefore you would not have a shield in its final year.

AUD - 69, 77
REG - 74, 81
FAR - 75!
BEC - 71, 82

IL candidate!

Finally done (5/24/16)!! Yahooooooo!

[jonnybgood2321]

thanks Jessica, I have another question..

By discounting your future cash flows using NPV or IRR, are you essentially discounting/reducing your assumed cash inflows because of the risk that over time those inflows won't be collected at the full amount that is calculated today, for the future?
Does that make sense? I've been studying for 8 hours so I'm cooked right now

AUD-PASS
BEC-
FAR-
REG-

[MaLoTu]

At the risk of adding confusion … the terminal year will have 2 cash flows, 1) the final operating cash flow and 2) the cash flow from the sale … so there may be a depreciation tax shield if the asset was used in operations for the entire year, right?

[MaLoTu]

NPV and IRR are just telling you what the PV of the future cash flows are. That is why you would reject a project that has a PV< today's cost … does that make sense?

[jessica8926]

@jonny: MaLoTu provides a good answer to your question and I would agree with her answer.

In regards to the original question and to answer MaLoTu, when it comes to capital budgeting and calculating those cash flows they do not take into account the shield for the last year if that item is being sold or has been depreciated completely. However, when figuring out discounted cash flows using NPV they do take the depreciation shield into account on the last year. So there are two different things happening here. It was my understanding that jonny was asking for capital budgeting so that is why I said no.

MaLoTu: if we are still talking about capital budgeting I still do not think you would take depreciation for the last year at least that is what my book is showing….

I hope this did not cause anymore confusion haha if it did then I apologize and will let someone else answer

AUD - 69, 77
REG - 74, 81
FAR - 75!
BEC - 71, 82

IL candidate!

Finally done (5/24/16)!! Yahooooooo!

[jonnybgood2321]

that makes sense. In capital budgeting for FCFs dep tax shield isn't included in the last year but when calculating discounted cash flows using NPV the tax shield is included in the final year, as shown on the example of page b3-10 in Becker… As for setting discounts on FCFs to make them PVFCF, is the reasoning behind setting a hurdle rate to discount that FCF to adjust for things like inflation risk and fluctuating interest rate risks?

AUD-PASS
BEC-
FAR-
REG-

[jessica8926]

I think when companies set a hurdle rate they are just saying this is the rate I need to achieve in order for this project to be worth it to us. So if it cannot reach that return rate as in the sum of PVFCF is negative then they pass on the project. I mean the rate they choose to use could account for potential inflation and interest rates and therefore they may need a higher hurdle rate (IRR) if they think those events will happen, but that is really speculation and the test does not get into that kind of thinking.

AUD - 69, 77
REG - 74, 81
FAR - 75!
BEC - 71, 82

IL candidate!

Finally done (5/24/16)!! Yahooooooo!

[jonnybgood2321]

I'm just trying to wrap my head around why FCFs are discounted and set at a hurdle rate, I know why would reject or accept an investment using the hurdle rate, but what does the actual hurdle rate really represent? like why are they discounting the FCFs to make them PVFCFs? maybe I'm looking too far into it, I'm taking BEC on Saturday there's so many details to remember for this exam I'm starting to lose it lol.

AUD-PASS
BEC-
FAR-
REG-

[MaLoTu]

The hurdle rate is indicative and should be in line with the firm's risk appetite. The hurdle rate can be subjective or it can be set by WACC, which has to do with the optimal capital structure of the firm.

[Author]

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