Lease ( BRviv )
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PV = Present Value.
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A = Amount of Installment
R = Rate of Interest. N = Number of years. 
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PV = Present Value.
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A = Amount of Installment R = Rate of Interest. N = Number of years.

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Lease
FINANCIAL MANAGEMENT
Chapter No (7.2)
Lease ( BRviv )
PartB
Format (1) : Installment (A)
Ex01. Arife Company wants to acquire an equipment costing Tk.15,00,000. The company has got an offer of taking lease from IFC Bank for 5 years at 16% in equal installments to be paid in the beginning of each year. How much should be paid to IFC Bank in each installment?
[ Ans: 3,94,926 ]
Ex02. Rapali insurance company wants to acquire an equipment costing Tk 17,00,000. The company has got an offer of taking lease from IDLC for 5 years at 14% in equal installments to be paid in the beginning of each year. How much should be paid to IDLC in each installment ?
Lease
[Ans: Tk.4,34,465 ]
Ex03. Lima Ltd. is faced with a decision to acquire on lease a car. The cost of the car is Tk 6,00,000. It has a life of 5 years. The leasing Company desires a return of
15% on the gross value of the asset. Find out lease rental installment if to be paid at the end of each year.
Ex04. Shakib Ltd. is faced with a decision to acquire on lease a car. The cost of the car is Tk 9,00,000. It has a life of 5 years. The leasing Company desires a return of 12% on the gross value of the asset. Find out lease rental installment if to be paid at the end of each year.
Ex05. Shoouhardro Ltd. is faced with a decision to acquire on lease a car. The cost of the car is Tk. 2,50,000. It has a life of 5 years. The leasing company desires a return of 10% on the gross value of the assets. Find out lease rental installment if
 To be paid at the beginning of each year. [Ans : 59,954 ]
 To be paid at the end of each year. [Ans : 65,949 ]
Lease
Ex06.Taslima Ltd. is faced with a decision to acquire on lease a car. The cost of the car is Tk. 5,50,000. It has a life of 5 years. The leasing company desires a return of 10% on the gross value of the assets. Find out lease rental installment if
 To be paid at the beginning of each year. [Ans: 1,31,899 ]
 To be paid at the end of each year. [Ans : 1,45,080 ]
Ex07.The Department of Finance and Banking of Tejgaon College is planning to install a computer lab costing Tk. 12,00,000 and has got an offer from Phoenix Leasing Company for 5 years at 18% interest. Lease payment should be made every month. How much should be paid to Prime Leasing Co. in each installment if:
 Payment is made at the end of each month. [Ans : 30,472 Tk ]
 Payment is made at the beginning of each month. [Ans : 30,022 Tk ]
Lease
Ex08.The Department of Finance and Banking of Tejgaon College is planning to install a computer lab costing Tk. 14,00,000 and has got an offer from Phoenix Leasing Company for 5 years at 17% interest. Lease payment should be made every month. How much should be paid to Prime Leasing Co. in each installment if:
 Payment is made at the end of each month. [Ans: 34,641 Tk ]
 Payment is made at the beginning of each month. [Ans: 34,164Tk ]
Ex09.Cost of an assets is Tk. 20 lakh. a 6 year lease of the assets is proposed to yield 10% return to the less or ignoring taxes. The salvage value of the assets is Zero. Determine equal lease rentals if payments are made (i) Annually (ii) Quarterly.[ Ans: (i) 4,59,242 (ii) 1,11,832 ]
Ex10.Cost of an assets is Tk. 22 lakh. a 6 year lease of the assets is proposed to yield 14% return to the less or ignoring taxes. The salvage value of the assets is Zero. Determine equal lease rentals if payments are made (i) Annually (ii) Quarterly.[ Ans: (i) Tk5,65,760(ii) Tk.1,37,001]
Lease
Format : (2) Loan Amortization schedule.
Ex11. XYZ Company wishes to purchase an assets costing Tk 4,00,000. The full amount needed to finance the asset ean be borrowed at 10% interest. The terms of the loan require equal end of year payments for the next 5 years. Determine the annual loan payment and break it into the amount of interest and the amount of principle paid for each year.
Ex12.Tanin Company wishes to purchase an assets costing Tk. 3,00,000. The full amount needed to finance the asset can be borrowed at 12% interest. The terms of the loan required equal end of y ear payments for the next 5 years. Determine the total annual loan and break it into the amount of interest and the amount of principal paid for each year.
[ Ans. Loan installment Tk. 83,224 ]
Ex13. Arife Company wants to acquire an equipment costing Tk.16,00,000. The company has got an offer of taking lease from IFC Bank for 5 years at 15% in equal installments to be paid in the beginning of each year. How much should be paid to IFC Bank in each installment? [Ans : 4,15,048 ]
Lease
Ex14.Arife Company wants to acquire an equipment costing Tk.30,00,000. The company has got an offer of taking lease from IFC Bank for 5 years at 14% in equal installments to be paid in the beginning of each year. How much should be paid to IFC Bank in each installment? [ Ans :7,66,536 ]
Format : (3) Present value of lease option.
Ex15. Square Ltd needs to acquire an equipment that will cost Tk 5,00,000. To finance the equipment the company want to take lease from united leasing Company for 5 years with an annual lease payment of Tk 1,60,000 to be paid at the end of each year. Corporate tax rate 40% and interest on lease is15% end. Calculate present value of lease payment. [ Ans : 3,73,333 ]
Ex16. Square Ltd needs to acquire an equipment that will cost Tk 6,00,000. To finance the equipment the company want to take lease from united leasing Company for 5 years with an annual lease payment of Tk 1,80,000 to be paid at the end of each year. Corporate tax rate 45% and interest on lease is 16% end.Calculate present value of lease payment. [ Ans : 3,87,082 ]
Lease
Format : (4) Present value of Borrow and Buying option.
Ex 17. Suppose you work for a nuclear laboratory that is Contemplating leasing a diagnostic scanner. The scanner costs Tk 20,00,000 and it would be depreciated straight line to zero over for 5 years. Because of radiation Contamination it for Tk 6,00,000 per year for 5 year’s. Assume that the tax rate is 35%. You can borrow at 8% before tax. Calculate the PV of buying option ?
Ex 18. Suppose you work for a nuclear laboratory that is Contemplating leasing a diagnostic scanner. The scanner costs Tk 25,00,000 and it would be depreciated straight line to zero over for 5 years. Because of radiation Contamination it for Tk 6,00,000 per year for 5 year’s. Assume that the tax rate is 35%. You can borrow at 9% before tax. Calculate the PV of buying option ?
Ex19. Square pharmaceutical company needs to acquire a machine that will cost Tk 6,00,000. The company wants to purchase the machine and to take loan from sonali Bank at 15% interest per annum repayable annually at the end of each of the 5 years in equal installments. Assume tax rate is 40%. [ Ans : 4,13,293 ]
Lease
Ex20. Zess pharmaceutical company needs to acquire a machine that will cost Tk 8,00,000. The company wants to purchase the machine and to take loan from Janata Bank at 15% interest per annum repayable annually at the end of each of the 5 years in equal installments. Assume tax rate is 40%. [ Ans :5,51,061 ]
Format : (5) Dissection makin.
Ex21. Suppose you work for a nuclear laboratory That is contemplating leasing a diagnostic scanner. The scanner costs Tk 20,00,000 and it would be depreciated straight line to zero salvage value over for 5 years. Because of radiation contamination it for Tk 6,00,000 per year for 5 years. Assume that the tax rate is 35%. You can borrow at 8% before tax. Should you lease or buy ?
Lease
Ex22. Suppose you work for a nuclear laboratory That is contemplating leasing a diagnostic scanner. The scanner costs Tk 15,00,000 and it would be depreciated straight line to zero salvage value over for 5 years. Because of radiation contamination it for Tk 5,00,000 per year for 5 years. Assume that the tax rate is 30%. You can borrow at 7% before tax. Should you lease or buy ?
Ex23. Helen is thinking of acquiring a computer. For that purpose she is to decide whether the computer is to be purchased through 12% borrowing or to be acquired on lease rent basis. The price of the car is Tk 60,000. Its annual maintenance cost is Tk 2,500 per year and expected life is 5 year. It is assumed that the straight line method of depreciation is allowable under income Tax act and tadx rate is 40%. The salvage value of the car is Tk 10,000. In computer of leasing the lease rental is Tk 20,000 for 5 equal annual Installment and maintenance expenses to be borne by lessor. Which alternative is to be selected by Helen ?
[ Ans. Leasing alternative is best for Helen ]
Lease
Ex24. Ruma is thinking of acquiring a computer for that purpose she is to decide whether the computer is to be purchase through 12% borrowing or to be acquired on lease rent basis. The price of the computer is Tk. 70,000. Its annual maintenance cost Tk. 2,200 per year and expected life is 5 years. It is assumed that the straight line method of depreciation is allowable under income tax act and the tax rate is 40%. The salvage value of the computer is Tk. 10,000.
In case of leasing, the lease rentals is Tk. 22,000 for 5 equal installment and maintenance expenses to be borne by lessor, which alternative is least for Ruma.
[ Ans. Leasing alternative is best for Ruma ]
Ex25. Thamina is thinking of acquiring a car. For that purpose she is to decide whether the car is to be purchased through 12% borrowing or to be acquired on lease rent basis. The price of the car is Tk 6,00,000. Its annual maintenance cost is Tk 25,000 per year and expected life is 5 year. It is assumed that the straight line method of depreciation is allowable under income Tax act and tadx rate is 35%. The salvage value of the car is Tk 1,00,000. In case of leasing the lease rental is Tk 2,00,000 for 5 equal annual Installment ( to be paid in advance / Beginning of the period )
and maintenance expenses to be borne by lessor. Which alternative is to be selected by Thmina ?
Lease
Ex 26. Mr Rahman is thinking of acquiring a car. For that purpose she is to decide whether the car is to be purchased through 12% borrowing or to be acquired on lease rent basis. The price of the car is Tk 7,00,000. Its annual maintenance cost is Tk 45,000 per year and expected life is 5 year. It is assumed that the straight line method of depreciation is allowable under income Tax act and tadx rate is 35%. The salvage value of the car is Tk 1,00,000. In case of leasing the lease rental is Tk 3,00,000 for 5 equal annual Installment ( to be paid in advance / Beginning of the period ) and maintenance expenses to be borne by lessor. Which alternative is to be selected by Mr Rahman ?
Ex19. Square pharmaceutical company needs to acquire a machine that will cost Tk 6,00,000. The company wants to purchase the machine and to take loan from sonali Bank at 15% interest per annum repayable annually at the end of each of the 5 years in equal installments. Assume tax rate is 40%. [ Ans : 4,13,293 ]
Ex20. Zess pharmaceutical company needs to acquire a machine that will cost Tk 8,00,000. The company wants to purchase the machine and to take loan from Janata Bank at 15% interest per annum repayable annually at the end of each of the 5 years in equal installments. Assume tax rate is 40%. [ Ans :5,51,061 ]
Part (C)
Lease
PartC(Math)
Exercise10
RTV is thinking to collect a machine at the lowest possible cost. The choice is either to lease one at Tk. 21,890 annually or to purchase one by taking loan of Tk. 54,000 the company’s Cost of debt is 12% and tax rate is 30%. Economic life is six year’s and have no salvage value. Depreciation will be charge on straight line method. Which alternative is better?
Ans.As the present value of each outflow for buying borrowing in lower than that for leasing the company should go for the buying option by taking loan.
Lease
Exercise11
The Texitle industries corporation is faced with the decision whether to purchase or to lease a “car”. The car can be leased on a five year contract of Tk. 1,2000 a year of it can be purchased for Tk. 50,000. The lease includes Maintenance and service. The salvage value of the car five years, hence is Tk. 10,000. The corporation uses the sum of the year digit Method of depreciation (allowable under income tax act). If the car is owned service and Maintenance charges would be Tk. 2,700 a year. The corporation can borrow at 8% and has a 25% tax rate. The average cost of capital of the corporation is 9%.
Ans. NPV of Loan =Tk. 39,103, Net advantage of Lease = Tk. 17,805.
Exercise12
Shimmicompany is thinking to purchase a Machine for Tk. 15,000. The Co. can borrow, Tk. 15,000 at an interest rate of 10% to be repaid in 10 equal annual installment of Tk. 2,700 or it can take the machine for an annual lease payment of Tk. 2,700. Under Income Tax Act, straight line lease of depreciation is allowed. The Co. Pays tax @ 45%. Which alternative should the company accept?
Lease
Ans.PV of lease Tk. 11,193 PV of buying Tk. 9,872. Buying is to be considered.
Exercise13
Tuli Machine Tools Company Ltd. is considering the acquisition of a large equipment to set up its factory in a backward region for Tk. 12,00,000. The equipment is expected to have an economic useful life 8 years. The equipment can be financed either with an 8 year term loan at 15 percent interest, repayable in equal installments of Tk. 2,58,676 per year, or by an equivalent amount of lease rent per year. In both cases, payments are due at the end of the year. The equipment is subject to the straight line method of depreciation for tax purposes. Assuming no salvage value after the 8 year useful life and 42 percent tax rate, which of the financing alternatives should it select?
Ans.PV of lease Tk. 11,193 PV of buying Tk. 9,872. Buying is to be considered.
Exercise14
Jamuna Ltd is expanding its facilities. In the coming year, the company will either purchase or lease equipment which it plans to use for 4 years and then replace it with a new one.Its current tax bracket is 37 percent. The other data are as follows:
Lease
Purchase:
 The purchase price of the equipment is Tk. 50,00,000,
 The expected salvage value after 4 years is Tk. 15,00,000,
 The equipment is subject to the straight line method of depreciation
 Funds to finance the equipment can be obtained at 16 percent
 The loan is to be repaid in four equal annual installments due at the end of each year
 The equipment will increase the annual installments due at end of each year
 The equipment will increase the annual revenues by Tk. 32,00,000 and increase annual cash operation costs by Tk. 25,00,000.
Lease
Leasing:
 The annual lease is Tk. 11,00,000
 The lease rent is payable at the end of each year for 4 years
 The equipment will increase annual revenues by Tk.32,00,000 and increase annual nondepreciation operation costs by Tk. 19,70,000 as the lessor will pay Tk. 1,00,000 for the maintenance costs associated with the equipment.
Determine whether the company should purchase or lease the equipment.
Ans. Lease, Tk. 8,21,142 Purchase, Tk. 34,88,992.
Lease
Exercise15
Dilruba is thinking of installing a Computer. Ti is to decide whether the computer is to be purchased outsight through 14% borrowing or to be acquired on lease rent basis.
The firm is in the 42% tax bracket. The other data are:
Purchases of Computer:
Purchases Price Tk. 23,00,000
Annual Maintenance Tk. 50,000 per Year
Life 6 Years
Depreciation Straight line Method
Salvage value Tk. 2,00,000
Leasing of Computer:
Leasecharge(To be paid in Advanced)Tk. 4,50,000( Including Maintenance)
Maintenance Expenses (to be borne by lessor)
You are required to advise the company as to whether, it should purchases the computer or acquire it on lease.
Lease
Ans. PV of lease Tk. 12,20,287; PV of Purchase Tk. 12,17,813.
Exercise16
Rafiq Builders Ltd. need to acquire the use of a crane for their construction business, and are considering buying or leasing a crane. The crane cost Tk. 14,00 000, and is subject to the straight line method of depreciation to a zero salvage value at the end of 5 years. In contrast, the lease rent is Tk. 2,50,000 per year to be paid in advanced each year for 5 years. Rafiq Builders Ltd. can raise debt at 14 percent payable in equal annual installment, each installment due at the beginning of the year. The company is in the 50 percent tax bracket. Should it lease or buy the crane?
Ans. PV of Purchase Tk. 8,25,995. PV of lease 5,84,250.
Exercise17
Lease
An industrial unit desires to acquire a diesel generating set costing Tk. 18 lakh which has an economic life of 10 years at the end of which the assets is not expected to have any residual value.The unit is considering the alternative choices of (a) taking the machinery on lease, or (b) Purchasing the assets outright by raising a loan.
Lease payments are to be made in advanced and lessor requires the asset to be completely amortised over its useful period and the asset will yield him a return of 10 percent.
The cost of debt is worked out at 16 percent per annum. The lender require the loan to be repaid in 10 equal annual installment becoming due at the beginning of the first year. Average rate of income tax is 50 percent. It is expected that the operating cost would remain the same under either method. The firm follows straight line method of depreciation and the same is accepted for tax purposes. As a financial consultant indicate what your advice will be.
Lease
Ans. PV of lease Tk. 10,36,275. PV of Purchases Tk. 11,96,119.
Board question
 A company needs to acquire an equipment that will cost Tk.3,35,220. The company has two alternatives to finance the equipment:
 To take lease from United Leasing Company for 5 years with an annual lease payment of Tk. 1,20,000 to be paid at the end of each period.
 To take loan from Janata Bank at 15% interest p.a. repayable annually at the end of each of the 5 years in equal installments. The equipment will be depreciated on straight line basis. Corporate tax rate is 40%.
Lease
Which offer the company should accept? [N.U2012]
 Rahaman is thinking of acquiring a car for that purpose he is 10 to decide whether the car is to be purchased through 12% borrowing or to be acquired on lease rent basis. The price of car is Tk. 7,00,000. Its annual maintenance cost is Tk. 45,000 per year and expected life is 5 years. It is assumed that the straight line method of depreciation is allowable under income Tax Act and tax rate is 35%. The salvage value of the car is Tk. 1,00,000. In case of leasing, the lease rental Tk.3,00,000 for 5 equal annual installment(to be paid in advance) and maintenance expenses to be borne by lessor. Which alternative is to be selected by Mr. Rahman?[N.U2013]
Lease
 A company is thinking to purchase a machine for Tk.12,500. The company can borrow Tk.12,500 at an interest rate of 12% to be repaid in 5 equal installments or it can take the machine for an annual lease payment of Tk.3,000. Under income Tax Act, a straightline basis of depreciation is allowed. The company pay tax @ 40%, which alternative should the company accept? [N.U2015]
Lease
 Mehrin is to decide whether a computer is to be purchase through 12% borrowing or to be acquire on a leaserent basis. The price of the computer is Tk. 3,00,000. It’s annual maintenance costs Tk. 25,000 per year, and the expected life is 5 years. Tax rate is 40%, and the straightline method of depreciation is allowable. The salvage value of the computer is Tk. 50,000. In case of leasing, annual lease rental is Tk. 1,00,000 for 5 equal annual installments, including maintenance cost Tk. 25,000, and maintenance cost to be borne by lessor . If the installation is given at beginning of the year for both the lease and buy option, Which alternative is best for Mehrin? [N.U2016]