Question
ABC Corporation is considering to expand its operation by adding 5 generators. The cost of these generators would be Tk. 100 million . The expected
ABC Corporation is considering to expand its operation by adding 5 generators. The cost of these generators would be Tk. 100 million. The expected life of the generators is 5 years. The addition of these generators will result in cash inflows of Tk. 50 million per year for 5 years. Cash outflows would be 50% of cash inflows. ABC uses straight line method of depreciation and expects no salvage value from the generators at the end their service lives. IDLC, a leading Non-Bank Financial Institution, offered ABC to lease the generators for 5 years. The lease payments to be made at the beginning of each year would be Tk. 24 million. The annualized risk-free rate of return is 7%. Tax rate for both ABC Corporation and IDLC is 30%.
- Show the cash flows associated with the generators to ABC if it decides to buy them.
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