(a) (i) If the stage 1 project is not undertaken, how should you treat the R&D expenses? Calculate the tax savings in 2012.
(ii) If stage 1 is undertaken and the project goes ahead, how should you treat the R&D expenses?
(iii) Is there any opportunity cost if the firm undertakes the project?
If so, calculate the benefit lost as a result.
(b) Describe how salvage values are taxed. Use the building's salvage value to illustrate your answer.