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While calculating Pv of leasing, when they say in the question the rental is paid immediately( at the start of an accounting period) it means year 0 or year 1?
In the question it says year 0, and the discounting factor on the basis of year0-year 5 at 8% is 1+0.372 why did we add one here?
Also when in question say the tax has been paid at the end of year 1 does it means same as arrears?
If the first rent is paid immediately then it is paid at time 0 (the start of the first year).
The discount factor for a flow at time 0 is 1 (the PV of the flow is the same as the flow).
If the question says that tax is paid in the year it occurs, then the first tax payment is at time 1 (the end of the first year). If it is paid 1 year in arrears then the first tax payment is at time 2.
It does seem that you have not watched my free lectures on investment appraisal with tax or the lectures on lease and buy.
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