YES Limited has decided to go for new machinery costing Rs. 65 crores and it is considering two options:
a. Option 1: To borrow the required funds and purchase the plant outright borrowing and purchasing the plant.
b. Option 2: To lease the plant.

ZEBRA Leasing Limited is willing to lease the plant to YES Limited for an annual lease rental of Rs. 15 crores for 5 years.
The tax relevant depreciation rate on the plant is 25 % as per the written down value method.
The net salvage value of the plant after five years is expected to be Rs. 15 crores.
ABH Limited has an effective tax rate of 35 % and its post- tax cost of debt is 7.50 %.

What is the net advantage of leasing (NAL) for YES Limited? What is your final decision? Provide suitable explanations for your choices.

Answer rating: 100% (QA)

To calculate the Net Advantage of Leasing NAL well compare the costs and benefits of both options bo... View the full answer