Scribd Logo
Upload

Welcome to Scribd!

  • NPV Lessee

    Uploaded by

    kabirsharan4
    8 views6 pages
    1) The document calculates loan repayment over 5 years for a Rs. 345,000 loan with 14% interest, showing decreasing loan amount outstanding and installment amounts that include both interest and principal payments each year. 2) It also calculates the net cash outflow under a buying option over 5 years, factoring in depreciation, interest, taxes paid, and a salvage value at the end. 3) Similarly, it calculates the net present value of cash outflows over 5 years under a leasing option, discounting the annual lease rentals and tax payments at a 7% rate. 4) Based on the calculations, the document recommends the buying option as it has a lower present value of

    Original Description:

    Copyright

    © © All Rights Reserved

    Available Formats

    XLSX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    1) The document calculates loan repayment over 5 years for a Rs. 345,000 loan with 14% interest, showing decreasing loan amount outstanding and installment amounts that include both interest and principal payments each year. 2) It also calculates the net cash outflow under a buying option over 5 years, factoring in depreciation, interest, taxes paid, and a salvage value at the end. 3) Similarly, it calculates the net present value of cash outflows over 5 years under a leasing option, discounting the annual lease rentals and tax payments at a 7% rate. 4) Based on the calculations, the document recommends the buying option as it has a lower present value of

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as xlsx, pdf, or txt
    8 views6 pages

    NPV Lessee

    Uploaded by

    kabirsharan4
    1) The document calculates loan repayment over 5 years for a Rs. 345,000 loan with 14% interest, showing decreasing loan amount outstanding and installment amounts that include both interest and principal payments each year. 2) It also calculates the net cash outflow under a buying option over 5 years, factoring in depreciation, interest, taxes paid, and a salvage value at the end. 3) Similarly, it calculates the net present value of cash outflows over 5 years under a leasing option, discounting the annual lease rentals and tax payments at a 7% rate. 4) Based on the calculations, the document recommends the buying option as it has a lower present value of

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as xlsx, pdf, or txt
    of 6

    Calculation of Debt Repayment

    Year Loan Amount O/s Interst (14%) Principal Installment


    1 345000 48300 52224 100524
    2 292776 40989 59536 100524
    3 233240 32654 67871 100524
    4 165369 23152 77373 100524
    5 87996 12528 87996 100524

    Calculation of Net Cash Outflow after Tax under Buying Option


    Year Depreciation Interest Total Tax Cash Outflow
    1 60000 48300 108300 54150 46374
    2 60000 40989 100989 50494 50030
    3 60000 32654 92654 46327 54198
    4 60000 23152 83152 41576 58949
    5 60000 12528 72528 36264 64260

    Total Net Cash Outflow 222057


    Less: 5th year Salvage value -32085
    Net Cash Outflow Under Buyi 189972

    Calculation of PV under Lease Option


    Year Lease Rental Tax Net Cash Outflow PV @ 7% Net Cash Outflow
    1 120000 60000 60000 0.935 56100
    2 120000 60000 60000 0.873 52380
    3 120000 60000 60000 0.816 48960
    4 120000 60000 60000 0.763 45780
    5 120000 60000 60000 0.713 42780
    Total 246000

    Net Cash Outflow Under Leasing Option 246000

    Decision: Buying Option is recommende as present value under buying is less than leasing option
    Machinery 345000
    Life 5
    Salvage 45000
    Loan Interest 0.14
    Lease Rental 120000
    Depreciation 60000
    Tax 0.5

    WN1 Annual Installment 100524


    PV @ 7% Net Cash Outflow
    0.935 43360
    0.873 43676
    0.816 44225
    0.763 44978
    0.713 45818
    Total 222057

    Shortcut
    4.100
    246000
    PVFA at 14%
    Year Present Value
    1 0.877
    2 0.769
    3 0.675
    4 0.592
    5 0.519
    Total 3.432
    Calculation of Debt Repayment
    Year Loan Amount O/s Interest Principal Installment
    1 1,000,000 150,000 148329 298329
    2 851671 127,751 170579 298329
    3 681092 102,164 196166 298329
    4 484926 72,739 225590 298329
    5 259336 38,993 259336 298329

    Calculation of Net Cash Outflow Under Buying Alternative


    Year Installment Depreciation Interest Total Tax Cash Out Flow
    1 298329 150000 150000 300000 150000 148329
    2 298329 127500 127751 255251 127625 170704
    3 298329 108375 102164 210539 105269 193060
    4 298329 92119 72739 164858 82429 215901
    5 298329 78301 38993 117294 58647 239682

    Total Net Cash Outflow 769721


    Less : Salvage Value -69,656
    Less : STCL -119,705
    Total Net Cash Outflow 580360

    Calculation of Net Cash Outflow Under Leasing Alternative

    667,571

    Decision : Buying Options is better than Leasing Option


    Machine 1,000,000
    Interest 0.15
    Salvage 100,000
    Dep 0.15
    Tax 0.50
    PVF @ 15% (1-5) 3.352

    WN1 Year Amount in beginn


    PV @ 7.5% Net Cash Out Flow 1 1,000,000
    0.930 137981 2 850,000
    0.865 147716 3 722,500
    0.805 155406 4 614,125
    0.749 161666 5 522,006
    0.697 166953
    Total 769721 WN2 Installment 298,329

    4.046
    Lease 330,000
    Dep Remaining
    150,000 850,000
    127,500 722,500
    108,375 614,125
    92,119 522,006
    78,301 443,705

    You might also like