DB Ltd has invested in equipment costing £400,000 for a project that will start immediately and last 3 years. The equipment will be disposed of in the third year of the project for £150,000. Capital allowances are available on the equipment expenditure at a rate of 18% per annum on a reducing balance basis, and a balancing allowance will be available in the year of disposal. The tax rate is 20% and tax is paid in the year to which it relates. 

What is the tax-saving cash flow in year 3 that will result from the balancing allowance? 

a. £118,960 

b. £30,000 

c. £48,413 

d. £23,792

Answer rating: 100% (QA)

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