Lease Financing Question An Industrial Unit Desires To Acquire A Diesel Generating S 2851531

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LEASE FINANCING: QUESTION An industrial unit desires to acquire a diesel generating set costing $ 2000000.00 which has an economic life of ten years at the end of which the asset is not expected to have any residual value. The unit is considering the alternative choices of (a)Taking the machinery on lease , or (b)Purchasing the asset outright by raising a loan. Document Preview:

LEASE FINANCING: QUESTION An industrial unit desires to acquire a diesel generating set costing $ 2000000.00 which has an economic life of ten years at the end of which the asset is not expected to have any residual value. The unit is considering the alternative choices of Taking the machinery on lease , or Purchasing the asset outright by raising a loan. Lease payments are to be made in advance and the lessor requires the asset to be completely amortized over its useful period and the asset will yield him a return of 10% The cost of debt is worked at 16% per anum. The lender requires the loan to be repaid in 10 equal annual installments, each installment becoming due at the beginning of the year. Average rate of income tax is 50%. It is expected that the operating costs would remain the same under either method. The firm follows straight line method of depreciation. As a financial consultant, indicate what your advise will be.

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