Group B: Problem 2. 2021 April-May Q.No. 5 Sahara Feed Industry (SFI) wishes to acquire a merchandised teed spreader that costs Rs 90,000. The Feed Company intends to operate the it is expected to have a salvage value of Rs 10,000 at the end of the fifth equipment for 5 years, at which time it will need to be replaced. However, year. The asset will be depreciated on a straight-line basis (Rs 18,000 per year) over the 5 year, and Sahara Feed is in a 30 percent tax bracket Annual lease payment is Rs 20,000 payable at the end of the year. Two means for financing the feea spreader are available A debt alternative carries an interest cost of 10 percent. Debt payments will be at the end of each of the 5 years using mortgage type of debt amortization a. What is SFI's PV of cost of leasing? b. What is SFI's PV of cost of purchasing? Should the machine be leased or purchased? c. The appropriate discount rate for cash flows used in the analysis is the firm's after-tax cost of debt. Why? Ans: (a) Rs 57,402.80 (b) Rs. 62,867.74 [5+7+3]