Vitex Limited has decided to go for a fork lift for internal transportation. It costs $10$ million and has an economic life of $6$ years at the end of which it will fetch a net salvage value of $1$ million. The fork lift will be depreciated at a rate of $40$ percent per annum under the written down value method for tax purposes. The marginal tax rate for Vitex is $35$ percent. Vitex can borrow $10$ million at $15\mathrm{.}4$ percent to buy the fork lift. As the financial manager of Vitex, you have been approached by Anupam Leasing which is willing to lease the fork lift for a lease rental of $2\mathrm{.}4$ million per year payable in arrear. Vitex Limited will have to bear all operating, maintenance, and insurance expenses. If Vitex leases the fork lift rather than buys it$,$ the financial implications are as follows: $1.$ Vitex saves $10$ million, the cost of the fork lift. This is equivalent to a cash inflow of $10$ million at the end of year $0.2.$ Vitex, not being the owner of the fork lift, cannot claim depreciation on it$.$ Hence it loses the depreciation tax shield. Further, Vitex does not get the salvage value after $6$ years. $3.$ Vitex must pay $2\mathrm{.}4$ million per year to Anupam Leasing. The first payment is due at the end of year $1.4.$ The lease payment of $2\mathrm{.}4$ million per year represents a tax deductible expense. Given a $35$ percent marginal tax rate, the lease payments will generate a tax shield of $0\mathrm{.}84$ million per year