How to calculate the answer of Tax Allowable depreciation? Working 3Year1234Calculation of Tax Payable$m$m$m$m$mSales Receipts (increase @ 5%)Purchases (increase @ 2%)Labour (increase @ 3%)5.25005.51255.7881-1.0200-1.0404-1.0612-1.0300-1.0609-1.09273.20003.41123.6342Tax Allowable Depreciation @ 25% straight-2.6667-2.6667-2.6667line methodTaxable Cash Flows0.53330.74450.9675Taxation @ 30%0.16000.22340.2903 B Plc. is a company based in the UK. It is considering a project investment in North Americaincluding the acquisition of new machinery which it hopes will increase its profits.The initial investment in machinery would be $8 million immediately and the project isexpected to last for three years.Investment in machinery receives tax allowable depreciation of 25% per annum on awww wstraight-line basis. Allowances are receivable one year in arrears. The machinery will be soldat the end of the project for $5 million, in year 3 prices.Sales are expected to be $5 million per annum in current terms. Sales prices are expected torise by 5% per annum.wwwPurchases of raw materials, and labour, are expected to be $1 million each in current terms,but expected to rise by 2% and 3% respectively.Corporation tax in the UK is 30% and in North America is 30%. Corporation tax is payable inthe following year in both countries.The project will require an injection of working capital immediately of $5 million and will bereleased at the end of the project. The working capital requirement is expected to rise by2% per annum.The nominal cost of capital of B Plc. is 10%. General inflation in the UK is predicted to be 4%per annum, and in North America is 3%, throughout the duration of the project.wwThe current spot rate for the £ to the $ is £1 = $1.5000.

Depreciation is the deduction in the value of the asset which leads to deduction in the tax as it is…

Answered: How to calculate the answer of Tax…

Business

Accounting

How to calculate the answer of Tax Allowable depreciation?

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter19: Lease Financing

Section: Chapter Questions

Problem 7P

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