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Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 5PB: Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated...

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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?

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