Question
please answer this question as fast as you can please? Grand Mind Ltd., is in the business of manufacturing steel utensils. The firm is planning
please answer this question as fast as you can please?
- Grand Mind Ltd., is in the business of manufacturing steel utensils. The firm is planning to diversify and add a new product line. The company require a machinery and can either purchase or get it on lease basis .
The machine can be purchased for $15,000,000. It is expected to have a useful life of 5 years with salvage value of $1,000,000 after 5 years. The purchase can be financed by a 20 percent loan repayable in 5 equal annual instalments ( inclusive of interest) becoming due at the end of each year. Alternatively, the machine can be taken on year-end lease rentals of $4,500,000 for 5 years. You may assume the following:
(a) The company follows written down value method of depreciation, the rate of depreciation being 25 percent.
(b) Tax rate is at 25 % and cost of capital is 18 percent
(c) Lease rents are to be paid at the end of the year.
(d) Maintenance expenses is estimated at $ 300,000 per year to be borne by the lessee.
Required
Advice the company, which option it should choose.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started