Homework Answers
| Cost of asset | 10 | million | dollar | |||
| Add: VAT @ 8% | 0.8 | |||||
| Total Cost | 10.8 | |||||
| Add: Commission Cost | 0.324 | |||||
| Total cost of asset | 11.124 | |||||
| Let the annual lease rental be x | ||||||
| Depreciation @ 10% on RBV method | ||||||
| Year | Asset Value | Dep | Balance | |||
| 1 | 11.12 | 1.11 | 10.01 | |||
| 2 | 10.01 | 1.00 | 9.01 | |||
| 3 | 9.01 | 0.90 | 8.11 | |||
| 4 | 8.11 | 0.81 | 7.30 | |||
| 5 | 7.30 | 0.73 | 6.57 | |||
| PV of Lease Rentals | ||||||
| Year | Lease Rent | PV @ 9% | Present Value | |||
| 0 | x | 1 | 1x | |||
| 1 | x | 0.917431 | 0.92x | |||
| 2 | x | 0.84168 | 0.84x | |||
| 3 | x | 0.772183 | 0.77x | |||
| 4 | x | 0.708425 | 0.71x | |||
| 5 | 0 | 0.649931 | 0.00 | |||
| 4.24x | ||||||
| At 9%, Inflows = Outflows | ||||||
| 11.124 | = | 4.24x | ||||
| Therefore, x = | 11.124/4.24 | |||||
| which comes to | 2.62 | mn $ annually | ||||
| which means | 0.22 | mn $ monthly | ||||
| Note: | ||||||
| As there is no tax rate involved, depreciation doesn’t impact the calculation | ||||||
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