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Sir few questions I want to ask
1) when we say that the cost of capital is for example 10%, then here the discount factor is 10% or is it the value after looking at present value table?
2) In lease vs buy decision only, we will consider after tax cost of borrowing, right?
3) Whether the machine is purchased or is it leased , if tax is payable 1 year after year end and if the first cash-flow is on 1st day of accounting period then first tax effect is at year 2. However if first cash-flow is on last day of accounting period then first tax effect is at year 1. Right?
4) Whether the machine is purchased or is it leased , if tax is NOT payable is arrear and it is paid within the same accounting year, then if the first cash-flow is on 1st day of accounting period then first tax effect is at which year ? And if first cash-flow is on last day of accounting period then first tax effect is at which year?
1. The discount factor is the figure from the table that we multiply the cash flow by in order to get the present value.
2. Correct
3. Correct
4. The first tax flow is on the last day of the relevant accounting period. So if the first cash flow is on the first day of the accounting period and is Time 0, then the first tax flow is on the last day of the accounting period, which is one year after the cash flow and is therefore Time 1. If the first cash flow is on the last day of the accounting period and is Time 0, then the first tax flow is also on the last day of the accounting period and is also Time 0.
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