Professional Documents
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PRACTICAL PROBLEM
• Tri star chemicals has acquired an equipment of Rs.100 lacs
under hire purchase scheme from Synergy finance & has
accepted installment of Rs 3, 94,440 per month for 36 months
• i = 36/37 * 2 * 14
• i = 27.24%
• n(n+1) n(n+1) - n ( n + 1)
2 2 2
• 36*37/2 = 666 36*37/2 - 24*25/2 = 366
• Year 2
• 24+23+22…..13 = 222* 4199840 = 1399947
36+35+34…….1 666
• 24*25/2 – 12*13/2 = 222
• Year 3
• 12+11+10…..1 = 78 * 4199840 = 491873
36+35+34…….1 666
PRACTICAL PROBLEM
• Narmada finance offers a Hire purchase plan for corporate borrowers
• Down payment 20 %
• Approximate formula
• 36/37 * 2 * 13 = 25.3%
SOLUTION contd.
• (30.89 * 12 ) * PVIFA p (i,3) = 800
• i / d 12 * PVIFA (i,3) = 2.158
• For i= 26 LHS = 2.185
• For i= 28 LHS = 2.141
• i= 27.23%
• Approximate formula
• 36/35 * 2 * 13 = 26.74%
CALCULATION OF INTEREST REBATE
• Effective rate of interest method
• Considering previous illustration if borrower wishes to pay
the outstanding loan after paying 24th installment , what
would be the interest rebate
• Total amount of outstanding installments – discounted
value of outstanding installments as on date of payment
• 30.89 * 12 = 370.68 (A)
• 30.89 * 12 * PVIFA p (25.38,1) (B)
• = 328.68
• A – B = 370.68 – 328.68
• = 42
CALCULATION OF INTEREST REBATE
• Rule 78 method (prescribed by Hire Purchase Act 1972
(amended)
• Considering previous illustration if borrower wishes to pay the
outstanding loan after paying 24th installment , what would be
the interest rebate
• R = t ( t + 1) * D
n(n+1)
• 12 * 13 * 312
36 * 37
• = 36.54
• Interest rebate under rule 78 is beneficial for lender
PRACTICAL PROBLEM
• Considering previous illustration if borrower wishes to pay the
outstanding loan after paying 24th installment , calculate effective
rate of interest implied in complete transaction in both methods
• Under Effective rate of interest method
• PV OF Lease payments
• + Lease management fees
• - PV of tax shield on Lease payments
• - PV of tax shield on Lease management Fees
COST OF LEASE FOR LESSEE