Emaar Builders need to acquire the use of a crane for construction business, and are considering buying or leasing a crane. The crane costs Rs. 2,500,000, and is subject to the straight-line method of depreciation to a zero salvage value at the end of 5 years. In contrast, the lease rent is Rs 550,000 per year to be paid in advance each year for 5 years. Emaar Builders can raise debt at 18% payable in equal annual instalments, each instalment due at the beginning of the year. The company is in the 30% tax bracket. Should it lease or buy the crane?
Emaar Builders need to acquire the use of a crane for construction business, and are considering buying or leasing a crane. The crane costs Rs. 2,500,000, and is subject to the straight-line method of depreciation to a zero salvage value at the end of 5 years. In contrast, the lease rent is Rs 550,000 per year to be paid in advance each year for 5 years. Emaar Builders can raise debt at 18% payable in equal annual instalments, each instalment due at the beginning of the year. The company is in the 30% tax bracket. Should it lease or buy the crane?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Emaar Builders need to acquire the use of a crane for construction business, and are considering buying or leasing a crane. The crane costs Rs. 2,500,000, and is subject to the straight-line method of
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