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I found this question in Bpp exam kit, its Buy VS Lease question. In case u need to refer pg number 40 Q)50
My question to you is under buy calculation, under cash inflows workings they have written tax allowable depreciation tax benefits and its 8000 per yr for 3yrs, How do arrive at this figure?
I know this sounds crazy without a pic or the entire text, can u pls help me out thnks in advance
they say tax savings on maintenance costs? how do u get tax savings on MC?
Presumably the company is already making profits and is already paying tax on those profits (which is what we always assume in Paper F9).
If they buy this machine then they will have to pay 25,000 a year in maintenance costs. This will reduce their existing profits and therefore mean they will pay less tax (i.e. they will save tax). The amount of tax they will save (which is effectively an inflow) is 30% x 25,000 = 7,500 a year. (Because they have shown everything in thousands, they have rounded it to 8, but strictly it should be 7.5)
I was scratching my head a lot for that 8000, knew my workings are correct thanks sir 🙂
Under Part b of this question they’re asking the APR, I haven’t come across this term in F9 text buk ,
plus can u explain the entire b (i) (ii)
pls means alotWhen this question was asked 10 years ago the syllabus was a lot different (and it wasn’t even called F9).
APR is examined at what is now F2 (it was not 10 years ago) and there is therefore little chance of it being asked in F9 – it never has been. So I would not worry too much about it.
(Although Part (a) of the question is certainly examinable in F9).APR is simply the real yearly rate. They are paying 10% a year and so 5% every six months.
Because of compounding, after 2 periods (of 6 months, i.e. one year it total) at 5% each period, every $100 borrowed would have grown to 100 x 1.05^2 = 110.25
So the total interest will have been 10.25, which is effectively 10.25/100 = 10.25% a year.It wont be asked according to you so less worries now thnks for the reply 🙂
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