March/ June 2018 Sample Paper Question 2

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August 5, 2020 at 7:05 pm #579368
padraigmc13
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In the solution for question 2 there is a calculation for tax relief lost in the financing side effects

Can you explain the basis for this-is it on account of a delay in 1 year of paying tax?

Thanks
August 6, 2020 at 8:45 am #579399
John Moffat
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Yes. Because of the 1 year delay the tax relief lost is from years 2 to 5 (instead of 1 to 4) and therefore the discount factor is the 5 year annuity factor less the 1 year factor.
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