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HELLO SIR!
ACTUALLY I AM REALLY CONFUSED REGARDING THE CALCULATION OF BUYING NPV OF AGD CO. I AM UNABLE TO UNDERSTAND THE BASIS OF CALCULATION GIVEN IN BPP KIT. PLEASE SIR IF YOU CAN EXPLAIN THE BUYING NPV PART OF THIS QUESTION COMPLETELY I WILL BE GRATEFUL TO YOU.
I didn’t paste the question because the space was not enough but I did mention the name of question.
THANKYOU!Please do not type in capital letters 🙂
If the buy the machine then they have an outflow of 320 for the initial purchases and outflows in each of the following years of 25 in respect of the maintenance.
The maintenance costs will reduce their taxable profit and therefore save them tax of 30% x $25 each year (the answer has round that to $8). They will also tax tax on the TAD (capital allowances) at 30% which are calculated as normal on a reducing balance basis.
Both of the tax effects are one year in arrears (as per the question).
Have you watched my free lectures on lease v buy? The lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.
Okay sir Thankyou so much for your support.
Sure I will take care of this from next time.
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