So in the answer to Q17, CFA included the sale of the shares as part of the inflow for the year before arriving at the net cash flow for the year. The net cash flow was then carried down and added to cash equivalents to give us our investable base. I was a little confused there. Because of the way they answered it, the living expenses and tax for that year reduced the investable base whiles salary increased it. I was under the impression that your equity portfolio and one-time deductions will go straight to investable base.
CFAI answer
Inflows Current Year Next Year
Salary 150,000
Pension 100,000
Sale of shares 13,000,000
Total inflows 13,150,000 100,000
Outflows
Income tax on salary & pension(40%) 60,000 40,000
Capital gains tax on shares(25%) 3,250,000
Donation to school 3,000,000
Education funding 850,000
Living expenses 150,000 150,000
Total outflows 7,130,000 190,000
Net cash flow 5,840,000 (90,000)
Investable assets Amount
Current year cash flow 5,840,000
cash equivalent 200,000
Total Investable assets 6,040,000
My thoughts:
Investable base: Sale of shares after tax: 13,000,000(1-.25) =9,750,000
Cash equivalent= 200,000
Donation to school= (3,000,000)
Education funding= (850,000)
Total investable assets = 6,100,000.
Some clarification needed here please.