What is the net advantage of leasing for optex

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Reference no: EM131962241

Optex Limited has decided to go for an equipment costing Rs. 60 million. Optex is considering two alternatives: (i) leasing the equipment, and (ii) borrowing and purchasing the equipment. GT capital is willing to lease the equipment to Optex for an annual lease rental of Rs.16 million for 5 years, the lease rental being payable in arrears. There is a management fee of Rs.1 million payable on signing the lease contract. The tax relevant depreciation rate on the equipment is 25 percent as per the WDV method. The net salvage value of the equipment after five years is expected to be Rs.14 million. Optex has an effective tax rate of 30 percent and its post- tax cost of debt is 7 percent. What is the net advantage of leasing (NAL) for Optex?

Reference no: EM131962241

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