Find out incremental cash flows

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Question - Data Entertainment Corporation (DEC) is considering buying a machine that costs Tk. 50,00,000. The machine will be depreciated over five years by the straight-line method and will be worthless at that time. The machine will generate additional before tax operating cash flow of Tk. 15,00,000 each year over its life. The company can lease the machine for five years with year-end payments of Tk. 12,00,000. The after-tax risk-free rate of return is 5% and the corporate tax rate is 30 percent.

a. Find out cash flows associated with the 'Buy" decision.

b. Find out cash flows associated with the 'Lease' decision.

c. Find out incremental cash flows associated with 'Lease Versus Buy' decision and then calculate the NPV of the lease to DEC based on the incremental cash flows.

Reference no: EM133003445

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