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A person wants to open a shop, have 2 options, to acquire a commercial space either by leasing for 10 years at annual rent of Rs. 2,00,000/- or by purchasing the space for Rs. 12,00,000/-. If a person can borrow money at 14% p.a compounded annually. Which alternate is most suitable?
(a) Leasing
(b) Prucasing
(c) Can't say
(d) Data Insufficient?
Most Upvoted Answer
A person wants to open a shop, have 2 options, to acquire a commercial...
Comparative Analysis of Leasing vs. Purchasing
To determine the most suitable option between leasing and purchasing a commercial space, we need to evaluate the financial implications of both choices.
Leasing Details
- Annual Rent: Rs. 2,00,000
- Lease Duration: 10 years
- Total Rent Over 10 Years: Rs. 20,00,000 (Rs. 2,00,000 * 10)
Present Value of Leasing
To find the present value of the total lease payments, we use the formula for the present value of an annuity:
- Interest Rate: 14% per annum
- Present Value of Lease Payments:
- Using the formula, we calculate the present value of Rs. 2,00,000 annually for 10 years at 14% interest.
Purchasing Details
- Purchase Price: Rs. 12,00,000
- No Additional Payments: Once purchased, there are no further payments.
Present Value of Purchasing
The purchase price is a one-time cost and does not incur any future payments, making its present value equal to the purchase price itself, i.e., Rs. 12,00,000.
Financial Comparison
- Total Present Value of Leasing Payments: (calculated value)
- Total Present Value of Purchasing: Rs. 12,00,000
Conclusion
If the present value of leasing payments exceeds Rs. 12,00,000, purchasing the space is more financially viable. Conversely, if it is less, leasing is preferable.
After calculating the present value of the lease payments at 14%, the decision can be made.
Overall, without specific present value calculations, it is advisable to choose the option with lower present value costs. Thus, the answer would be (b) Purchasing, if the present value of leasing payments surpasses the purchase price.
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A person wants to open a shop, have 2 options, to acquire a commercial space either by leasing for 10 years at annual rent of Rs. 2,00,000/- or by purchasing the space for Rs. 12,00,000/-. If a person can borrow money at 14% p.a compounded annually. Which alternate is most suitable?(a) Leasing(b) Prucasing(c) Can't say(d) Data Insufficient?
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A person wants to open a shop, have 2 options, to acquire a commercial space either by leasing for 10 years at annual rent of Rs. 2,00,000/- or by purchasing the space for Rs. 12,00,000/-. If a person can borrow money at 14% p.a compounded annually. Which alternate is most suitable?(a) Leasing(b) Prucasing(c) Can't say(d) Data Insufficient? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about A person wants to open a shop, have 2 options, to acquire a commercial space either by leasing for 10 years at annual rent of Rs. 2,00,000/- or by purchasing the space for Rs. 12,00,000/-. If a person can borrow money at 14% p.a compounded annually. Which alternate is most suitable?(a) Leasing(b) Prucasing(c) Can't say(d) Data Insufficient? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A person wants to open a shop, have 2 options, to acquire a commercial space either by leasing for 10 years at annual rent of Rs. 2,00,000/- or by purchasing the space for Rs. 12,00,000/-. If a person can borrow money at 14% p.a compounded annually. Which alternate is most suitable?(a) Leasing(b) Prucasing(c) Can't say(d) Data Insufficient?.
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