Rani Inc. decides to acquire an equipment that has a 4-year life and costs Taka 50,00,000 delivered and installed. The equipment can be written off according to the accelerated depreciation chart of the NBR, 45 percent can be written off in the first year, 30 percent in the second year, and 25 percent in the third year. Annual maintenance cost is Tk. 2,00,000. It is considering two options for financing the equipment. (1) Rani can borrow an equivalent amount at 12 percent per year for 4 years. The loan will be amortized over 4 years. Yearly loan payment is Tk. 16,46,362 and Interest payments according to amortization table are Tk. 6,00,000, Tk.4,74,436, Tk. 3,33,806, and Tk. 1,76,299 respectively. (2) Rani will lease the equipment for 4 years at a rental charge of Taka 13,15,500 per year, payable at the end of each year. It has the option to buy the equipment at the end of the 4th year for Tk. 8,00,000. Lessee will maintain the equipment. The equipment will be used for at least 5 years. Required: Do a lease versus buy analysis using 12.5 percent as the discount rate. Marginal tax rate is 30%.
