Q. XYZ Builders need to acquire the use of a crane for construction business, and are considering buying or leasing a crane. The crane costs Rs. 1,000,000, 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 220,000 per year to be paid at the end each year for 5 years. XYZ Builders can raise debt at 14% payable in equal annual instalments, each instalment due at the end of the year. The company is in the 50% tax bracket. Should it lease or buy the crane?

Leasing an asset can be defined as taking an asset for a specified period of time by paying some…

Answered: XYZ Builders need to acquire the use of…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Q. XYZ Builders need to acquire the use of a crane for construction business, and are

considering buying or leasing a crane. The crane costs Rs. 1,000,000, 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 220,000 per year to be paid at the end each year for 5 years. XYZ Builders

can raise debt at 14% payable in equal annual instalments, each instalment due at the end

of the year. The company is in the 50% tax bracket. Should it lease or buy the crane?

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