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XYZ Builders need to acquire the use of a crane for construction business, and are...

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Finance

XYZ Builders need to acquire the use of a crane for construction business, and are considering buying or leasing a crane. The crane costs Rs. 2,000,000, and is subject to the straight-line method of depreciation to a zero-salvage value at the end of 10 years. In contrast, the lease rent is Rs 440,000 per year to be paid in advance each year for 10 years. XYZ Builders can raise debt at 14% payable in equal annual instalments, each instalment due at the beginning of the year. The company is in the 50% tax bracket. Should it lease or buy the crane?

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