A company is undertaking a lease-or-buy evaluation, using the post-tax cost of bank borrowing as the discount rate.
Details of the two alternatives are as follows:
Buy option:
· To be financed by a bank loan
· Tax depreciation allowances are available on a reducing-balance basis
· Assets depreciated on a straight-line basis
Lease option:
· Finance lease
· Maintenance to be paid by the lessee
· Tax relief available on interest payments and book depreciation
Which THREE of the following are relevant cashflows in the lease-or-buy appraisal?
- Tax relief on tax depreciation allowances
- Bank loan payments
- Maintenance payments
- Lease payments
- Tax relief on the book depreciation