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Dear Sir,
When calculating the NPV of cash flow in “Buy” option taxation has been included as saving as well as the Tax on capital allowance.
Am I right to say that when calculating the “Buy”option only the capital allowance taxation should be considered?
Cost of Machine 320,000
Annual cost 25,000
Tax 30%
Depreciation reducing balance 25%
Scrap value 50,000
tax pay one year in arrears
Project 3 yearsBook answer:
Cost: as above (no problem with those)
Taxation for year 2 year 3 and year 4 8 each year (why???)
Tax allowable dep year 2 = 24 / year 3 = 18 and year 4= 39 (no problem with those)I don t understand why the 30% tax on 25000 has been included as saving
Could you please help?
Thanks in advance
Gabriella
They pay costs of 25,000 a year – this will reduce whatever their existing profits are and will therefore mean will pay less tax than they currently are paying. So a tax saving as a result of 30% x 25,000 = 7,500 (which the examiner has rounded to 8,000)
Dear Sir,
Thanks for your explanation.
I have another questionLet say that I have to calculate the sensitivity of variable cost (10,000) and contribution (7,000) tax @ 30%.
Am I right if I calculate as below:
PV of variable cost is 7,000 (10,000- 3000 tax saving)
PV contribution is 4900 (7000 – 2100 tax paid)Thanks in advance
GabriellaWhen calculating the
In future, you must start a new thread when you are asking about a different topic.
Yes – you are correct 🙂
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