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?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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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