What is the present value

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Reference no: EM131500305

Question: Bangalore Engineering Ltd. is planning to have an access to a machine for a period of 5 years. The company can either have an access through the leasing arrangement or it can borrow money at 14% to buy the machine. The company is in 50% tax bracket. In case of leasing, the company will be required to pay annual year end lease rent of `1,20,000 for 5 years. All maintenance, insurance and other costs are to be borne by the lessee. In case of purchasing the machine (which costs `3,43,300), the company would have to repay 14% five year loan in 5 equal annual instalments, each instalment becoming due at the end of each year. Machine would be depreciated on a straight line basis, with no salvage value. Advice the company which options it should go for, assuming lease rents are paid at the end of the year. Present value of Re.1 for 5 years. PVF @ 5% PVF @ 7% PVF @14% 0.952 0.935 0.877 0.907 0.873 0.769 0.864 0.816 0.675 0.823 0.763 0.592 0.784 0.713 0.519

Reference no: EM131500305

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