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In case of finance lease why we did not calculate Depreciation for the machine?
Please Help Me….
Firstly, depreciation is not relevant because it is not a cash flow and we are only interested in cash flows for NPV analysis.
Secondly, although capital allowances are available if we buy the machine (and therefore tax is saved) they are not available if we only lease the machine.
The free lecture on this may help you.
(In future, if you want me to answer then you must ask in the Ask the ACCA Tutor Forum. This forum is for students to help each other.)
in this question part a (III), i could not get it right the ANSWER discount factor…3.487…How come this figure has been worked out in the booklet?
The first payment is immediate (time 0) and then for three more years (time 1 to 3).
So the annuity factor is 1 + 2.487 (the three year annuity factor) = 3.487
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