Tax exhaustion

We assume in all NPV questions in Paper FM (not just lease and buy) that the company is already making sufficient profits so as to cover any extra expenses or capital allowances. So we assume that they will therefore save tax in full on any extra expenses or capital allowances. If this was not the case, it could be (for example) that the extra capital allowances were greater than the profits. Therefore they would make a tax loss and would not get the full benefit of the tax saving. This is called tax exhaustion.

Okay, that makes sense. Thank you :)

You are welcome :-)