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Hi,
I read Emile woolf and BppWith the initial investment 3$ mil, useful life is 3 years, at the end of year 3, tax allowance dep’=15% on straight line basis , residual value = 0, tax is payable one year in arrears.
year 0 1 2 3 4
tax relieft 0.135(end of year 2) 0.135 (3) 0.63 (4) ( treatment in bbp book)
tax relieft 0.135(end of year 1) 0.135 (2) 0.135 (3) 0.495 (4) ( treatment in Emile woolf)the result will be different because the different DCFactor, so which way is right?
Normally the line which you say is Emile Woolf would be the correct answer (although it is not the tax relief but the tax allowances – the relief would mean multiplying by the rate of tax).
However, without seeing the full question, there could be something special in the wording which might have made BPP correct. However that would be usual.To see the full way of dealing with tax, why not watch my free lecture on here 🙂
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