A machine costs £10,000 and has a five-year life. By how much can taxable profit be reduced through the writing-down allowance (WDA) in the third year, if the annual WDA is 25 per cent on a declining balance? If the tax rate is 30 per cent, what is the present value of the WDA in Year 4 to the machine's owners?
If the machine has a scrap value of £1,000 after five years, what will be the fifth year's adjustment to the WDA?
The required rate of return is 10 per cent.