(b) Ross Limited is interested in acquiring the use of a generator costing Rs. 800,000/-. It has two options:

1.to borrow the amount at18% per annum repayment in 5 equal annual installment at the end of each year or

2.to take on lease the asset for a period of 5 years at the end of each year of Rs. 175,000/-

The corporation tax rate is 35% and the depreciation is allowed on straight line method. The asset will have a salvage value of Rs. 180,000 at the end of the 5^th year.

Required:

You are required to evaluate each source of financing and advice the company about lease or buy decision.