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Dear Sir,
While calculating DCF for taxation if Corporate Tax is given in question. Same is deducted from investment and then tax allowance depreciation is added. However in Lease or Buy question why the same practice is not followed ? Why we are straight away doing Tax allowance?
The same practice is followed when calculated for the buy situation. For the lease situation there are no capital allowances and it is the lease payment that is tax allowable.
However, since the profit (before depreciation) will be the same whether lease or buy, it is only the tax saving on the capital allowances (in the case of buy) and the tax saving on the lease payments (in the case of leasing) that need be considered.
I do suggest that you watch my free lecture on lease and buy where this is all explained with an example.
(The lectures are a complete course for Paper F9 and cover everything needed to be able to pass the exam well.)
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