Discounted Cash Flow Further Aspects, Lease versus Buy – ACCA Financial Management (FM)
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Sir, I understand the calculation of capital allowances and balancing allowance, but I couldn鈥檛 figure out why in the lease vs buy example the scrap value and balancing allowance are shown in a separate year 5 instead of in year 4, even though the machine鈥檚 life is 4 years. Is this treatment only applicable to lease vs buy questions, or does it apply in other cases as well?
It depends on what is told in the question about the tax timing. Here the tax is one year in arrears (i.e. after the relevant flow).
Brilliant lessons these three, thank you. Made it much clearer, quite easy really. Now I feel a lot more confident in my ability tackling these questions!
Great 馃檪
The profits are taxed before the payment of dividends. However as you write, it would make no difference to the calculation because we use the dividends in the calculation.
Hi sir, hope you are fine. I have doubt regarding the after tax cost of capital, say If we were to assume that the money for this project was entirely raised from equity, we then not make any interest savings and thus there would be no difference if we were to take either before or after tax cost of capital right?