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1. On January 1, 2017, XYZ Company signed an 4-year lease agreement for equipment. Annual payments are $28,500, to be made at the beginning of each year. At the end of the lease, the equipment will revert to the lessor. The equipment has a useful life of 8 years and has no residual value. At the time of the lease agreement, the equipment has a fair value of Rs. 300,000. An interest rate of 10.5% and straight-line depreciation are used. [Marks 8] its full question complete ... here is the sample of how you solve 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. 2,000,000, and is subject to the straight-line method of depreciation to a zero-salvage value at the end of 10 years. In contrast, the lease rent is Rs 440,000 per year to be paid in advance each year for 10 years. XYZ Builders can raise debt at 14% payable in equal annual instalments, each instalment due at the beginning of the year. The company is in the 50% tax bracket. Should it lease or buy the crane?

Option- 1 Lease Opton (a) Annual Lease Rent 440,000 - Tax Saved @ 504 (220.000) Steckive Cas Pa Qul flow (Year to 9) 220,00 Note: Here, lease payments are made in beginning of the year, therefore Present Value factor will be used for year " o to 9" instead of "1 to 10" Debt rate is considered as the cost of capital 1.6.14%. Beseint Value Annuity factor (PVAE) @ 144. Clear O to 9) = 5.946 "C)P.V. of Effective cash out how 220,000 X 5.946 1,308, 120g Purchase Oplein (a) Initial Cash Outflow = 2,000,000 (6) Calwlation of Besent Value of Tax Saving from Depreciation Depreciation (2,000,000 - 10) 200,000 Tax Saved (50% of Dep) 100, ovo PVAF @ 14.1. (Year 1 to 10) Besent Value of Tax Saving - lov,on x5.216 521,600 Net Amount of present Value from Purchase Outflow 2000,000 - 521,600 1478,400 Lease Option will be FAVOURABLE to the extent of E 170,280 (1478,4013 - 1,308120) Option 2 5.216

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