Hi, I am a bit confused with the Example 3 in chapter 9 of the study note, could anyone help?
The question is as below:
A company is considering whether to buy a new machine at a cost of $100,000 or to lease it. Buying it will involve borrowing money at an after tax interest cost of 7% p.a. If the machine is bought, it will be bought on the last day of current financial year. The machine will be needed for four years, and will have a scrap value after 4 years of $10,000. Corporation tax is 30% ( payable one ye after the end of the financial year). Capital allowance is 25% reducing balance.
The answer shows that the tax saving started in the year 1: Year 1 - £7500, Year 2 - 5625 and so on.
I can’t understand why the tax saving starts in the year one instead of year two. Please help.
Many thanks.
The question is as below:
A company is considering whether to buy a new machine at a cost of $100,000 or to lease it. Buying it will involve borrowing money at an after tax interest cost of 7% p.a. If the machine is bought, it will be bought on the last day of current financial year. The machine will be needed for four years, and will have a scrap value after 4 years of $10,000. Corporation tax is 30% ( payable one ye after the end of the financial year). Capital allowance is 25% reducing balance.
The answer shows that the tax saving started in the year 1: Year 1 - £7500, Year 2 - 5625 and so on.
I can’t understand why the tax saving starts in the year one instead of year two. Please help.
Many thanks.
