The diamond company can lease equipment for 5 years, making annual payments of Rs 4095 per year at the end of each year or can buy the equipment for Rs 12500. At the end of the five years, the equipment will have no salvage value. The company’s cost of capital is 12% and before-tax cost of debt is 10%. The company uses straight line depreciation method and has a 40% tax rate.

 

Using schedules, suggest the appropriate alternative to the company. Use after tax cost of the discount factor

Answer rating: 100% (QA)

Solution Calculation of Annual net cash outflows in case of lease Calculati... View the full answer