What Is the Formula for the Tax-Shield Approach to OCF

question 97

Essay

What is the formula for the tax-shield approach to OCF?
Explain the two key points the formula illustrates.

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Definitions:

Consolidated Financial Statements

Financial statements that show the financial position, results of operations, and cash flows of a parent company and its subsidiaries as a single economic entity.

Direct Method

a way of preparing the cash flow statement where actual cash flows from operating activities are reported rather than adjusting net income on an accrual basis.

Consolidation Process

The procedure of combining the financial statements of separate subsidiary entities into those of the parent company to present as one financial statement.

Shareholders' Equity

The residual interest in the assets of an entity after deducting liabilities, representing the owners' claim on the company's assets.