ABC Inc

Subject:AccountingPrice:2.87 Bought7

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ABC Inc. is contemplating on two options of either buying or leasing of an Equipment that has a negotiated price of Br20 M. the equipment is expected to last five years in use and be salvageable for Br2 m at the end of its economic life. The depreciation policy of the firm is Straight line and applicable yearly and consistently. When the equipment is Leased, the lessor expects br7.5 m/year of rent. ABC Inc. is in 30% tax bracket, and capable of borrowing at 16%.

 

Instruction: Evaluate lease vs buying and advise management of ABC Inc. which one of the two is worth considering.