Discuss the applications of leasing in a few industries.. and for tax purposes will be depreciated towards a zero salvage value over a 5-year period. However, at the end of 5-year period, the machine...

Discuss the applications of leasing in a few industries.. and for tax purposes will be depreciated towards a zero salvage value over a 5-year period. However, at the

end of 5-year period, the machine actually has an expected salvage value of `2100. This is fully taxable at the tax rate of 40%. Straight line method of depreciation is used. Further, the project is expected to generate annual cash revenues of `5000 per year over the next five years (net of cash operating expenses but before depreciation and taxes). Tiger Bulls has a target debt ratio of 45% for projects of this type which is included in after tax cost of capital estimate of 13%. Tiger Bulls can borrow funds at a before tax rate of 8%. Should the asset be purchased or leased. Tiger Bulls estimates that the operating expenses are `1000 per year and the annual lease payments are `4200. Also it is given that the loan interest payments are `1200,

`996, `774, `536 and `280 respectively for years 1 to 5.