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Please help me with why when there is advance payment in leasing, tax benefit is received in the second year. Why is it received in the second year when the payment is payed on year zero. Because in buying options, tax benefit is received in the very next year and in case of leasing, benefit of year zero is received on year 2, two years after the payment is made.
Thank you.
The first payment is at time 0. (which is a point in time – the start of the first year).
Tax is calculated at the end of first year, which is time 1 (the end of the first year / start of the second year).
If there is a 1 year delay in tax (as is usually, but not always, the case in the exam) then the tax effect will be at time 2.
(I do explain this in my free lectures on investment appraisal with tax and on lease versus buy.)
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