Group 'B': Problem-solving/case studies (20) 6. TT Company needs a machine for the construction of...
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Group 'B': Problem-solving/case studies (20) 6. TT Company needs a machine for the construction of a tunnel. One alternative is to lease the machine on 4-year contract for a lease payment of Rs.50,000 beginning of year payment. Alternatively, it could purchase a machine for Rs.200,000 financing by a bank loan with an interest rate of 10 percent and instalments are paid at the beginning of the year. The machine depreciated under MACRS 3-year property class. The cash salvage value of machine at the end will be Rs. 20,000. The corporate tax rate is 30 percent. a) What are the main benefits of leasing and purchasing? b) What is the cost of leasing? c) What is the cost of purchasing using the table method? d) Should the company lease or purchase the machine? e) Why company uses Kdt as a discount rate in evaluating leasing and purchasing decisions? 2 of 2
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