Magnum Leasing is in the business of providing automobiles on lease
to corporate clients. Magnum is considering a new model of ford car for
which an enquiry has come. The cost of the vehicle is Rs 1.5 million. Its
operating, maintenance, insurance and other costs are expected to be
Rs 0.25 million in year 1; thereafter it will increase annually by 6%. The
car is expected to have a useful life of 6 years and it will fetch a net
salvage value of Rs 0.6 million after that. The depreciation rate for tax
purposes will be 40% under the written down value method. Centaur's
marginal tax rate is 35% and its cost of capital is 10%.
Answer the following questions on the basis of information provided.
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