A company intends to install a power saving machine and have option of buying or leasing. The company can obtain a loan at 14% payable in five equal instalments of K178,858 each, at the beginning of the year. In case of leasing, the company would require to pay an annual end of year rent of 25% of the cost of machine for 5 years. The company is in 40% tax bracket. The salvage value is estimated at K24,998 at the end of 5 years assuming straight line depreciation.

Evaluate the two alternatives and advise the company by considering after tax cost of debt concept for both alternatives.