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Sir I am slightly confused in doing the part a of this question: umm the question says that initial investment is 150m in yr 0 nd 50m so how do we get the figures 127.50 & 36.8??
and can u explain the logic behind not adding the capital allowance for every year calculated and just adding the tax benefit of in year 6 ??
Also I would like to thankyou for this website as it is the only hope for students who self study!
The question says that the figures in the original schedule are after tax.
The capital allowance workings are given in the answer, and the allowance for year 0 is 75.00 and therefore the tax saving is 75.00 x 30% = 22.50.
So the post tax cash flow is 150 – 22.50 = 127.50.The allowances for year 1 are 25 + 18.75 = 43.75, and so the tax saving is 43.75 x 30% = 13.12. So the post-tax cash flow is 50 – 13.12 = 36.88.
Again the figures in the question are already the post-tax figures and so do not need adjusting for the capital allowances. However the question says in note 5 that the balancing allowance has not been included in the figures and so needs to be brought in to the corrected schedule.
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