Question
Company considers leasing equipment (annual lease ₹12
lakh for 5 years) vs buying at ₹45 lakh financed at 10% loan. Tax rate = 30%. Equipment depreciated straight-line over 5 years, nil residual. How should the company decide?Solution
Lease vs buy requires computing PV of after-tax cash flows. Lease: rentals × (1–tax). Buy: loan repayments net of tax + depreciation shield. The cheaper PV option is preferred.
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