Question 5 (15 marks)

A company is considering an investment of 50.000 made at the beginning of the year for a period of 5 years.

At the end of the fifth year the investment will be sold at a scrap value of 10,000.

The capital allowances can be claimed at 20% on a straight-line method.

The corporation tax is 12.5% and is payable one year in arrears.

Cost of capital is 10%

Required

Determine the tax savings of the investment.