Subject: Financial strategy & policy

ABC Machine Tool Company is considering the acquisiton of a largeequipment to set up its factory in a backward region for Rs.12,00,000. The equipment is expected to have an economic usefullife of 8 years. The equipment can be fnanced either with an eightyear term loan at 14% interest, repayable in equal instalments of Rs2,58,676 per year, or by an equivalent amount of lease rent per year.In both cases, payments are due at the end of the year. Theequipment is subject to the straight line method of depreciaton.Assuming no salvage value, and 50% corporate tax rate. Which of thefnancing alternatves should it select ?t