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There is a question ASOP Co (Dec 2009) where I’m having a problem with the Tax-savings on License Fee & Lease Payments. Both of the cashflows are payable at the start of the year & tax is paid in arrears.
As per the rule that you gave in your lecture on lease vs buy you said that if the first cash flow occurs on the first day of the accounting period then the first tax effect would be at Time 1 (if tax is in arrears).
BUT that is not the case with the License Fee & Lease Payments because their tax-saving effect occurs at Time 2.
I’m confused please explain!!!
I do not say that in the lecture at all !!!
If the first cash flow is on the first day of an accounting period (time 0), then the tax is calculated at the end of the period (time 1) and the tax cash flow occurs one year later (time 2).
Do watch the lecture again (and also the lectures on investment appraisal with tax).
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