Answer Happy

A company buys equipment for £150,000. It will use
the equipment for four years, after which it will be disposed of
for £25,000. The equipment attracts capital allowances
at 25% per annum on a reducing balance basis. The tax rate is
20% and tax is paid one year after the accounting year
end.
The company’s cost of capital is 8%.
What is the present value of the tax saving that results from
the year 1 capital allowance (to the nearest £10)?
a.
£7,500
b.
£6,430
c.
£32,140
d.
£6,950