. Should the manufacturing company lease of purchase the trucks?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:(Q.1) A manufacturing company wishes to acquire three heavy trucks that cost Rs 100,000 in total. A leasing company has offered to lease the trucks to a manufacturing company for a total Rs
25,000 per year for each of the five years with lease payment payable in advance. To evaluate this option, manufacturing company depreciated the trucks via straight-line depreciation over their
five-year normal recovery period and 8 percent investment tax credit is in effect. The marginal tax rate applicable is 40 percent and before tax cost of debt is 15%. If the trucks are leased, the
ITC will be passed on to the leasing company. Should the manufacturing company lease of purchase the trucks?
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