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In standard NPV appraisal questions, Cashflow Timings of both Taxation & Tax-savings on Capital Allowance will be the same.
If Tax is not in arrears (i.e. paid immediately) then Tax & Tax-savings on Capital Allowance will be [Time 1]
If Tax is in arrears (i.e. one year later) then Tax & Tax-savings on Capital Allowance will be [Time 2]
This is what you said in your lecture that the Timing of Tax-savings on CA depends upon Tax timings.
Please correct me if I am wrong anywhere.
Thanks for your time I do appreciate your work 🙂
I asked this question from the perspective of the usual NPV questions, not from Lease & Buy point of view.
Is it true that Net Operating Cash Flows & Machine is bought usually on the first day of an accounting period and tax is calculated at the year-end.
For Example:
If Net Operating Cash Flows occur on the first day (1.1.2017) then tax is calculated at the year-end (31.12.2017) but the tax is paid on Time 1 (1.1.2018) because one day doesn’t make any difference; And if tax is in arrears then it is paid one year later at Time 2 (31.12.2018).BUT if Net Operating Cash Flows occur at the last day (31.12.2017) then tax is calculated immediately at this very last day (31.12.2017) but the tax is paid on Time 0 (31.12.2017); And if tax is in arrears then it is paid one-year later at Time 1 (31.12.2018).
Please correct my first sentence and the two examples that I ask you!
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