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Purchase vs. Lease

Forums › ACCA Forums › ACCA FM Financial Management Forums › Purchase vs. Lease

  • This topic has 1 reply, 2 voices, and was last updated 10 years ago by John Moffat.
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  • Author
    Posts
  • November 8, 2014 at 8:47 pm #208487
    Accountaholic
    Member
    • Topics: 96
    • Replies: 67
    • ☆☆

    Why do we not include interest cost when we are calculating for purchase option?

    Like for example, in my question:
    Machine could be bought for $750k using a bank loan charging annual rate of 7% pa.
    Scrap value after 5 years is 10% of purchase price
    Maintenance cost is $20000 pa.

    Thanks

    November 9, 2014 at 12:47 pm #208567
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54765
    • ☆☆☆☆☆

    The reason we discount is in order to account for the interest.

    (If you want me to answer, then in future please ask in the Ask the Tutor forum)

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