ROT Ltd. is considering whether it should buy or lease equipment that costs 1.60 crores and...
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ROT Ltd. is considering whether it should buy or lease equipment that costs 1.60 crores and has a post- tax salvage value of 16 lakh at the end of its life of 5 years. A finance company, CBK Ltd. has offered to lease the equipment for 5 years at annual lease payments of 40 lakh at the beginning of each year. CBK Ltd. will also maintain the equipment which would otherwise cost ROT Ltd. 2 lakh p.a. on an average. The owner of the equipment can claim depreciation on WDV basis at 25% each year. The company's tax Jhm rate is 30% and its cost of borrowing is 149% and the overall weighted average cost of capital is 15%. Should the company buy the asset or lease the equipment if the NPV of the equipment is 12 lakh (negative)? ROT Ltd. is considering whether it should buy or lease equipment that costs 1.60 crores and has a post- tax salvage value of 16 lakh at the end of its life of 5 years. A finance company, CBK Ltd. has offered to lease the equipment for 5 years at annual lease payments of 40 lakh at the beginning of each year. CBK Ltd. will also maintain the equipment which would otherwise cost ROT Ltd. 2 lakh p.a. on an average. The owner of the equipment can claim depreciation on WDV basis at 25% each year. The company's tax Jhm rate is 30% and its cost of borrowing is 149% and the overall weighted average cost of capital is 15%. Should the company buy the asset or lease the equipment if the NPV of the equipment is 12 lakh (negative)?
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ROT Ltd has got 2 option either to buy the assets or to lease it If it buys the asset it wil... View the full answer
Related Book For
Managerial Accounting
ISBN: 978-0176223311
1st Canadian Edition
Authors: Karen Wilken Braun, Wendy Tietz, Walter Harrison, Rhonda Pyp
Posted Date:
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