Which THREE of the following are relevant cashflows in the lease-or-buy appraisal?

A company is undertaking a lease-or-buy evaluation, using the post-tax cost of bank borrowing as the discount rate.

Details of the two alternatives are as follows:

Buy option:

• To be financed by a bank loan

• Tax depreciation allowances are available on a reducing-balance basis

• Assets depreciated on a straight-line basis

Lease option:

• Finance lease

• Maintenance to be paid by the lessee

• Tax relief available on interest payments and book depreciation

Which THREE of the following are relevant cashflows in the lease-or-buy appraisal?
A . Tax relief on tax depreciation allowances
B . Bank loan payments
C . Maintenance payments
D . Lease payments
E . Tax relief on the book depreciation

View Answer

Answer: A,D,E