2. Cemex Cement Bangladesh Ltd. (hereafter referred to as "Cemex") is contemplating to have an...
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2. Cemex Cement Bangladesh Ltd. (hereafter referred to as "Cemex") is contemplating to have an access to a machine for a period of 5 years. Discussions with various banks and non-bank financial institutions have shown that the company can have the use of machine for the stipulated period (5 years) through leasing arrangement or the requisite amount can be borrowed at 14% to buy the machine. The firm is in 50% corporate tax bracket. In the case of leasing, the firm would be required to pay annual end-of-year lease rent of BDT 1,20,000 for 5 years. All maintenance, insurance and other costs are to be borne by the lessee (Cemex). In the case of purchase of the machine (which costs BDT 3,43,300), the firm would have 14% five-year loan to be paid in 5 equal annual installments, each installment becoming due at the end of each year. The machine would be depreciated on a straight line basis (SLM), with no salvage value. Requirement: Advise Cemex which option it should go for, assuming lease rents are paid at the end of the year
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