Year

1
2
3
4
5
6
7
8

EAI

Principal EAI
7500000 1671495
6953505 1671495
6325036 1671495
5602296 1671495
4771146 1671495
3815322 1671495
2716126 1671495
1452050 1671495
-1638

Interest Principal Repaid BV

Depreciation
1125000
546495 7500000
1875000
1043026
628469.25 5625000
1406250
948755.4
722739.6375 4218750
1054687.5
840344.4
831150.5831 3164063
791015.625
715671.8
955823.1706 2373047
593261.7188
572298.4
1099196.646 1779785
444946.2891
407418.9
1264076.143 1334839
333709.7168
217807.4
1453687.565 1001129
250282.2876

Purchase Price/ PVIFA (15,8)

1671495

After tax cost of borrowing is 9.5%, 9.5/.65 is the interest rate =14.62
Thus 15% approximately

1650528

Tax Benefit
Outflow
1050000
621495
857246.5125 814248.5
701205.0019
970290
570976.0147 1100519
458126.7419 1213368
356035.625 1315459
259395.0008 1412100
163831.4031 1507664

PVIF
0.913242
0.834011
0.761654
0.695574
0.635228
0.580117
0.529787
0.483824

5.433436

PVOF
567575.3
679092.2
739025.1
765492.7
770765.1
763119.8
748112
729443.2
5762625

Year

Lease
Maintance Tax Benefit Total outflow PVIF
PVCO
0 1400000
1400000
1
1400000
1-7 1400000
175000
551250
1023750 4.949612 5067165.505
8
175000
551250
-376250 0.483824 -182038.6287
6285126.877

Year
0
1
2
3
4
5
6
7
8

Principal Hire purchase instalment

Interest Prinicapl Repaid BV
7500000
1837500
1837500
1837500
900000
937500
7500000
1837500
900000
937500
5625000
1837500
900000
937500
4218750
1837500
900000
937500
3164062.5
1837500
900000
937500
2373046.875
1837500
900000
937500
1779785.156
1837500
900000
937500
1334838.867
900000
1001129.15

Hire purchase is similar to buying option.

However the interest payment and depreciation and all start one term after the machine is bought

7500000/1837500
4.081632653

0.15894

total payment=7500000+900000*8=14700000
Hire purchase instalment=14700000/8

total payment
14700000
instalment
1837500

Depreciation
1875000
1406250
1054687.5
791015.625
593261.7188
444946.2891
333709.7168
250282.2876

Tax Benefit
971250
807187.5
684140.625
591855.4688
522641.6016
470731.2012
431798.4009
402598.8007

total interest roi

7200000

0.12

Outflow
1837500
866250
1030312.5
1153359.375
1245644.531
1314858.398
1366768.799
1405701.599
-402598.8007

PVIF

Net
1
1837500
0.913242009 791095.8904
0.834010967 859291.9247
0.761653851
878460.61
0.695574293 866438.3148
0.635227665 835234.4306
0.580116589 792885.2539
0.52978684 744722.2075
0.483823598 -194786.8002
7410841.832

Option
Buying
Leasing
Hire Purchase (Normal)

Overall Cash Outflow

5762625.454
6285126.877
7410841.832

Since Min Outflow is in buying option we should buy the asset