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Hello Sir, I don’t know if you have the this question so I’ll just write it here.
A company is considering the purchase of a machine costing $320,000. Maintenance costs are $25,000 p.a. The machine will be used for 3 years and at the end will be sold for $50,000.
Annual lease rent is $120,000 per year, payable in advance.
Capital allowances are 25% reducing balance. The after tax borrowing rate is 7%.
The company pays tax on profits at an annual rate of 30% and all tax liabilities are paid one year in arrears.
I correctly worked out the LEASE part after watching the lecture, but however, in the BUY part there’s a Tax (inflow)@ 30% with an $8,000 cash inflow for 3 years before the calulation of Tax allowable depreciation. I did not understand that how and why this figure was calculated.
Thanks.In future, if you want me to answer a question then please ask in the F9 Ask the Tutor Forum – this forum is for students to help each other.
It should be 7.5!
It is the tax saved each year as a result of the extra maintenance costs of 25000 per year
(30% x 25000 = 7500)I assume that you are looking at the BPP revision kit. They have either decided simply to round the 7.5 up to 8 (which is a bit silly) or else have simply made a mistake 🙂
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