Show the cash flows associated with theplant&machinery to DELTA if it decides to buy them. Show the cash flows associated with the plant& machinery to DELTA if it decides to take lease on them from IDLC. Show the incremental cash flows for lease versus buy to DELTAof the plant & machinery
DELTA Corporation, a producer of refrigerators, is considering to expand its operation by adding new plant & machinery. The cost of the plant and machinery would be Tk. 230 million. The expected life of the plant & machinery is 5 years. The addition of these plant & machinery will result in
- Show the cash flows associated with theplant&machinery to DELTA if it decides to buy them.
- Show the cash flows associated with the plant& machinery to DELTA if it decides to take lease on them from IDLC.
- Show the incremental cash flows for lease versus buy to DELTAof the plant & machinery.
- Calculate the
NPV from the incremental cash flows. If you are the analyst, would you recommend DELTAto take a lease on the plant & machineries from IDLC or buy them? - Find out the NPV of the lease of the plant& machinery to IDLC. Show the calculation.
- Assume now that DELTA Corporation’s tax rate is 10% while IDLC’s tax rate remained at 30% and IDLCrevises its offer to reduce the lease payments to 50 million a year.
(i) Now find out the NPVto DELTA and to IDLC of the lease.
(ii)Find out the minimum lease payments that IDLC can accept and maximum lease payments that DELTA can accept.
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