Python Machine Company is considering the acquisition of a large equipment to set up its factory in a backward region for Rs. 1,900,000. The equipment is expected to have an economic useful life of 10 years. The equipment can be financed either with an eight-year term loan at 16% interest, repayable in equal instalments of Rs 393,112 per year, or by an equivalent amount of lease rent per year. In both cases, payments are due at the end of the year. The equipment is subject to the straight-line method of depreciation. Assuming no salvage value, and 30% corporate tax rate. Which of the financing alternatives should it select?

Python Machine Company is considering the acquisition of a large equipment to set up its factory in a backward region for Rs. 1,900,000. The equipment is expected to have an economic useful life of 10 years. The equipment can be financed either with an eight-year term loan at 16% interest, repayable in equal instalments of Rs 393,112 per year, or by an equivalent amount of lease rent per year. In both cases, payments are due at the end of the year. The equipment is subject to the straight-line method of depreciation. Assuming no salvage value, and 30% corporate tax rate. Which of the financing alternatives should it select?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 9P

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