Hire Purchase vs.

Leasing
Depreciation – could be claimed by hirer
but not by lessee
Tax benefit – only interest part is
deductible expense and not principle.
Whole of lease rental is deductible.
Salvage value – Hirer get the benefit of
salvage value but not lessee

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 Hire Purchase vs. Leasing
Valuation
Calculation of Net Advantage of leasing
H-P = Investment outlay – present value of
tax shield on depreciation – present value of
tax shield on interest – present value of net
salvage value.
Leasing = Present value of lease rental –
present value of tax shield on lease rental .

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Calculation of Net Advantage of leasing
Investment outlay – present value of tax
shield on depreciation – present value of tax
shield on interest – present value of net
salvage value – Present value of lease
rental + present value of tax shield on lease
rental .

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 Criteria
If NAL is negative, the lease is not
financially advantageous and company
should not opt for it.

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