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Unformatted text preview: Cost of machine: Rs. 60 lakhs (exclusive of Central Sales Tax of 4%) Life of machinery: 5 years Salvage value: 10% of book value Depreciation on SLM: 10%; Tax relevant depreciation: 10% KPL received a proposal from Avon Lease Ltd (AVL) to either Lease or Hire Purchase the equipment. The lease terms are: 90 ptpq and flat rate of interest in HP transaction is 14%. Both lease and HP rentals are payable quarterly in arrears over a period of 4 years. The marginal cost of debt and equity are 16% and 24% respectively. The debt: equity of KPL is 3:1 and its tax bracket is 40%. KPL allocates interest on SOYD basis in case of hire purchase. Evaluate the three options: Purchase, Lease and Hire-Purchase and determine the option that KPL shall choose, using Weingartner’s model for lease evaluation. 1...
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This note was uploaded on 01/28/2011 for the course FIN 315 taught by Professor Welker during the Spring '09 term at IUP.
- Spring '09