Intermediate. A company’s financial director is deciding whether to purchase or lease two assets:

Asset 1 has a ten-year life with a zero residual value. It can be purchased for $120 000. If the asset is purchased it would be paid for in cash on the day the asset is acquired. Alternatively, it can be leased for ten payments of $18000 per annum payable each year in advance.

Asset 2 has a five-year life. It can be purchased for $51.000 and will have a residual value of $20000 after five years. If the asset is purchased it would be paid for'in cash on the day the asset is acquired. Alternatively, it can be leased for five payments of $10000 per annum payable each year in arrears. If leased, the asset will remain the property of the lessor and will be returned at the end of the five year contract.

The cost of capital is 10 per cent per annum. Ignore taxation.

Required:

Prepare calculations to show whether each of the assets should be purchased or leased. (5 marks)