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Dear John,
I don not fully understand the calculation of Tax Shield on loan and Tax Relief Lost and Subsidy Benefit from the answers made by the examiners.
Why Tax Shield on loan and Tax Relief Lost is multiplied by the difference between AF and DF ?
And for Subsidy Benefit should’ t be also multiplied by (1 – Tax rate) because is a saving ?
Thank you very much for your time and your answer
I admire your continuous hard work , dedication and passion 🙂
Cori
There is a one year delay in the tax, and therefore the tax benefit on the loan is from time 2 to 5. The discount factor for an annuity from 2 – 5 is the 5 year annuity factor less the 1 year annuity factor.
As far as the subsidy benefit is concerned, there is indeed a tax saving, but again because of the 1 year delay in tax the benefit is from years 2 – 5. So the benefit of the subsidy is 3,038,000 but the resulting tax saving is 868,000.
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