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The problem asks whether a company should lease equipment worth Tk. 10 lac or purchase it, using the equivalent loan method. Here is a breakdown of the information given:

- Equipment cost: Tk. 10 lac
- Lease payments: Tk. 1,75,000 annually for 8 years
- Corporate tax rate: 35%
- Depreciation (if buying): 25% write-off on a declining balance
- Borrowing rate: 15%

The equivalent loan method requires calculating the present value (PV) of leasing and purchasing the equipment, accounting for taxes and borrowing costs. Then we can compare both options to determine which is better.

### Step 1: Lease option
For the lease option, the company makes 8 annual lease payments of Tk. 1,75,000. We need to calculate the after-tax cost of these lease payments.

The after-tax lease payment = Lease payment × (1 - Tax rate)
\[
\text{After-tax lease payment} = 1,75,000 \times (1 - 0.35) = 1,75,000 \times 0.65 = 1,13,750
\]

The present value of the lease payments is calculated by discounting the after-tax lease payments over 8 years using the borrowing rate (15%).

### Step 2: Buy option
If the company buys the equipment, it can depreciate it at 25% per year, and the tax savings from depreciation (due to the 35% corporate tax rate) must be considered. We will calculate the present value of tax savings from depreciation and the cost of borrowing for the purchase.

To conclude, once we calculate the present value for both the leasing and buying options, we can compare them to make the decision.

Let me calculate this for you.The results of the calculations are as follows:

1. **Present value of leasing the equipment**: Tk. 5,10,432.82
2. **Present value of tax savings from depreciation if the company buys**: Tk. 2,11,590.95
3. **Present value of borrowing cost if the company buys**: Tk. 3,26,901.77

### Conclusion:
- The total cost of buying the equipment is the present value of borrowing (Tk. 3,26,901.77) minus the tax savings from depreciation (Tk. 2,11,590.95), which results in a net cost of Tk. 1,15,310.82.
- The present value of leasing (Tk. 5,10,432.82) is significantly higher than the cost of buying.

Therefore, **it is better for the company to buy the equipment rather than lease it**, as the cost of buying is lower.

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Would you like further details or have any questions?

Here are 5 questions for deeper understanding:
1. How does the present value of lease payments change if the tax rate increases?
2. What would happen if the borrowing rate was lower than 15%?
3. How is the equivalent loan method different from other financial decision-making methods?
4. How would shorter or longer lease periods affect the comparison?
5. What is the effect of straight-line depreciation versus declining balance depreciation?

**Tip**: When making financial decisions, always account for tax implications to ensure accurate comparisons between leasing and buying.

A company wants to lease Tk. 10 lac equipment. The lessor requires eight annual end-of-the-year lease payments of Tk. 1,75,000. The corporate tax rate is 35%. Should the company lease the equipment? Use the equivalent loan method.

Explore whether a company should lease or buy equipment using the equivalent loan method. This analysis considers lease payments, corporate tax, depreciation rates, and borrowing costs. Understand the financial impact of both options with detailed calculations.

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