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Hello Sir,
Question –
Trecor Co can claim tax-allowable depreciation on a 25% reducing balance basis. It pays tax at an annual
rate of 30% one year in arrears.
What amount of tax relief would be received by Trecor in time 4 of a net present value (NPV) calculation?We have calculated the tax amount for 1,2,3 which is at the end of 2,3,4 years however we havent calculated it for year 4 , why ? because ultimately it has asked for 4 years and the machinery itself is for 4 yrs?
The tax allowable depreciation in the final year is a balancing charge or a balancing allowance of the difference between the sale proceeds and the tax written down value.
I explain all this in my free lectures on investment appraisal with tax.
yeah now you have pointed it down , I remember it , I always watch you lectures before proceeding, its just that we tend to forget sometime to apply that as well
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