Expalin purchase outright and leaminger plc, Financial Management

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LEAMINGER PLC

(a) Purchase outright

759_Expalin Purchase outright and LEAMINGER PLC.png

(2) Balancing allowance

2127_Expalin Purchase outright and LEAMINGER PLC 1.png

Tax effect = 93,906 × 30% = 28,172

Finance lease

Annuity Factor (AF) at 10% for 4 years is 3·17

Thus PV outflows = (135,000 + 15,000)3·17 = (475,500)

PV tax relief = [(150,000 × 0·3)3·17]/1·1 = 129,682

Net Present Cost = $(345,818)

On the base of net present value purchasing outright appears to be the least cost method.

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