You want to buy a new plant with a price of Rs. 400,000. The borrowing cost is 10% interest rate to be paid at the end of each year. If it is purchased, the maintenance fee is Rs.10,000 per year paid at the end of each year. The depreciation falls in the MACRS 5-year class, rates are 30%, 20%, 10%, and 9%. The tax is 40%.

Alternatively, the plant can be taken on lease for Rs. 85,000 upon delivery with 4 more annual rentals of Rs. 85,000 to be made at the end. This alternative includes maintenance requirement. After 04 years the assets salvage value is expected to be Rs. 20, 000.

Required: What do you suggest should the plant be leased or purchased? Why? NOTE: DO IT IN THE BOX SO IT WILL BE EASY TO UNDERSTAND)

Question

You want to buy a new plant with a price of Rs. 400,000. The borrowing cost is 10% interest rate to be paid at the end of each year. If it is purchased, the maintenance fee is Rs.10,000 per year paid at the end of each year. The depreciation falls in the MACRS 5-year class, rates are 30%, 20%, 10%, and 9%. The tax is 40%.

Alternatively, the plant can be taken on lease for Rs. 85,000 upon delivery with 4 more annual rentals of Rs. 85,000 to be made at the end. This alternative includes maintenance requirement. After 04 years the assets salvage value is expected to be Rs. 20, 000.

Required: What do you suggest should the plant be leased or purchased? Why? NOTE: DO IT IN THE BOX SO IT WILL BE EASY TO UNDERSTAND)

Accepted Answer

The Answer is in the image, click to view ...

Question

You want to buy a new plant with a price of Rs. 400,000. The borrowing cost is 10% interest rate to be paid at the

Step by Step Solution

Step: 1

Get Instant Access with AI-Powered Solutions

Step: 2

Step: 3

Ace Your Homework with AI

Students also viewed these Accounting questions

Question

Question

Question

Question

Question

Question

Question

Question

Question

Question