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Hie John there is an example 1.8 on Bpp page214 on leases
Useful life of five years
They say payment is at the end of the year
question is that calculating PV of leasing costswhen calculating the amount of tax savings and discount factor
They say year 2 – 6 30% × 20000 then they multiply it by6 year cumulative present value factor which is an Annuity at time 6…
Is subtracted from
1 year present value factor of 9%
Why are we subtracting the 1 year..I do not have the BPP Study Text only the Revision Kit.
However annuity factors apply to annuities that start in 1 years time.
Here the first tax flow is a 2 years time and the last one is in 6 years time.
Therefore we take the 6 year annuity factor and subtract the 1 year factors so as to be left with the total for 2 to 6.If you are unsure about the timings then watch my free lectures on lease and buy.
If you are unsure about the discounting then do remind yourself my watching the free Paper MA lectures on investment appraisal, because the discounting itself is revision from Paper MA.
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