Soal
1. A tourism company is considering acquisition of 10 personal computers. The
computers can be purchased for Rs. 20,000 each and would be depreciated over
five year periode. Their anticipated value at the end of 5 years is zeor.
Alternativley, the computer can be leased for Fs 60,000 each annually, payable at
the end of each year. The deduction is recognised as the payments are made. The
company can take loans at 15% interest and pays tax at 35%.
a. What is the net financing provided by the lease?
i. What are net cash flows from the lease?
ii. Should company lease or buy computers?
2. a constructin company needs to acquire a crane and cannot decide whether to buy
or lease. The crane costs Rs 4,000,000 and can be depreciated straight line to a
zero salvage value in five years. The company has a marginal tax rate of 35%.
Lease payment are Rs 90,000 annually
a. find the net initital outlay and the tax shield on depreciation for each of the
next five years if the crane is purchased
b. Supporse that the lease expense is payable at the beginning of each of the
next five years and that the tax savings resulting from the lease deduction
are recognised as the payment is made. Find the after tax cash flow from
the leasing alternative for each of the next five years.
c. What is the amount of financing the lease provides ? what is the cash flow
stream for eah of the next five years
d. If its cost of debt (before tax) is 14 %, what the company should do?