Tippletine co

You need to keep the interest saving and the tax effect separate, because there is a 1 year delay on tax. So the subsidy ignoring tax is from years 1 to 4, so just use the 4 year annuity factor for this. However the tax on it is from years 2 to 5, and for that the discounting is as you have written.

Thank you Sir ,now it is so clear

Hello Sir also help me on the tax shield on the loan How did the examiner derive this (0.025-0.003)

The question says that interest would be payable at 30 basis points (i.e. 0.03) less than the risk free rate of 2.5%.