A firm is planning to manufacture some new products for which it needs a new machine. The firm can get this machine either on Lease or on Hire Purchase.

Machine cost- Rs. 50 lakhs

Depreciation Rate 25% on WDV basis ,

Cost of capital and cost of Debt are 16% and 20% respectively

Tax rate 30%

Hire Purchase plan Flat rate of interest at which Hire-Purchase is available is 16% Repayment has to be made in 3 equated annual installments in advance.20% Down payment is required

Lease Plan Lease rentals are payable at Rs. 200/1000 annually in advance. Lease period is for 5 years. Assume SOYD method for allocation of total charge for credit under Hire-Purchase. Net Salvage value after 3 years is Rs.10 lakhs. Should the firm go for Leasing or for Hire-Purchase?