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PART A question says based on financing cashflows only means only consider the outflow?what about the savings from operating cost?
The license fee is an expense, it will reduce the taxable profit as do all expenses, and therefore it will save tax.
The savings from operating cost will be made whichever way the project is financed and therefore it is irrelevant to the decision as to whether they lease or buy (which is why the question specifically says to consider the financing costs only – i.e. those flows that will be different depending how it is financed)
Part b does take into account the licence fee – it is included in the calculation of the 974,762 (the PV of buying. It was not included separately when calculating leasing in part a because the lease payment included the license fee).
part a if i calculate the asset cost of 1 million without bracket sign and tax benefit with bracket sign my answer would be different. is this wrong?
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