188体育

Consider this very simplified example. Suppose that

• a finance lessor鈥檚 investment in plant today will save them tax of 拢1,000,000 in a year鈥檚 time
• the lessor will have to pay tax of 拢1,200,000 in five years鈥� time on the profit from leasing the asset.

With a 10% interest rate

• the net present value of the 拢1,000,000 saved next year is 拢909,091 (拢909,091 invested today at 10% yields interest of 拢90,909 in a year鈥檚 time; so 拢909,091 invested now + 拢90,909 interest amounts to 拢1,000,000 in a year; or working back from the future sum of 拢1,000,000 x 100/110 = 拢909,091)
• the net present value of the 拢1,200,000 is 拢745,106 (compounding 拢745,106 at 10% for five years = 拢1,200,000; or working back from the future sum of 拢1,200,000: 拢1.2m x (100/110 x 100/110 x 100/110 x 100/110 x 100/110) = 拢745,106).

In short, the net present value (the 鈥榬eal鈥� value today) of the 拢1,000,000 saved earlyon by the finance lessor (拢909,091) is greater than the net present value (the 鈥榬eal鈥檝alue today) of the 拢1,200,000 due in five years (拢745,106). So the deal looks profitable for the lessor.