CMA Final · Strategic Financial Management · Leasing Decisions
Sundaram Textiles Ltd leases a machine from Kaveri Leasing for 5 years at an annual lease rental of ₹2,40,000 payable at the end of each year. The lessee's tax rate is 25% and the lease rental is fully tax-deductible. What is the annual after-tax cash outflow of the lessee on the lease?
The lease rental is tax-deductible, so the after-tax outflow is the rental less the tax shield. At 25% tax, ₹2,40,000 becomes ₹1,80,000 per year, since the tax saving of ₹60,000 is deducted from the rental paid.
- A₹1,80,000Correct
- B₹2,40,000
- C₹3,00,000
- D₹60,000
Explanation
After-tax rental = rental × (1 − tax rate) = 2,40,000 × (1 − 0.25) = ₹1,80,000. The tax shield of ₹60,000 reduces the outflow. Option ₹60,000 shows only the tax saving, and ₹3,00,000 wrongly adds the tax instead of deducting it.
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