Question

Illustration 2.8
Assume for the Hindustan Manufacturers Ltd (HML) a capital investment proposal of 1,000
lakh during 20X0-X1 The investment outlay can be financed by either 20 per cent debt, reply-
able in live equal annual instalments or leasing, the annual lease rentals per 1.000 heing 7500
(Year 1, 7400 (Year 2) and 200 (Years 3-5). The depreciation rate relevant for the block is
25 per cent while the assumed marginal tax rate for the HML is 35 per cent. If the HIML wishes
to minimise/reduce its tax liability during 20X0-X1 and 20X1-X2, which alternative method of
financing (borrowing or leasing) of investment should it select.​

Answer 1

Answer:

Yes!!

Explanation:

Illustration 2.8

Assume for the Hindustan Manufacturers Ltd (HML) a capital investment proposal of 1,000

lakh during 20X0-X1 The investment outlay can be financed by either 20 per cent debt, reply-

able in live equal annual instalments or leasing, the annual lease rentals per 1.000 heing 7500

(Year 1, 7400 (Year 2) and 200 (Years 3-5). The depreciation rate relevant for the block is

25 per cent while the assumed marginal tax rate for the HML is 35 per cent. If the HIML wishes

to minimise/reduce its tax liability during 20X0-X1 and 20X1-X2, which alternative method of

financing (borrowing or leasing) of investment should it select.