Past paper.

Hawker Co is about to replace its existing delivery vehicle with a new design of vehicle that offers greater fuel economy. It estimates that replacing the existing vehicle will save running costs of $2,000 per year There are two financing options Option 1 The vehicle could be purchased for $34,000 using a bank loan with an after-tax cost of borrowing of 4% per year. The vehicle would have a useful me of four years and would have a residual value of $14.000 at the end of that period. Straight-line tax allowable depreciation is available on the vehicle. The vehicle would be subject to a government CO2 emissions tax of $600 at 1 end of each year of operation Emissions tax expenses are corporation tax deductible. Option 2 The vehicle could be leased for a period of four years for a payment of $6,000 per year, payable at the start of each year The estor will pay the CD; emissions tax Lease payments are a corporation tax deductible expense Hawker Co's after tax weighted average cost of capital is 8% It pays corporation tax at a rate of 20% one year in arrears Discount factor taken in NPV of both leasing and borrowing loan to buy asset is 4%. Can you tell me why don't 8% is taken?