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can the tutors unpack the solutions on the attached document. 1. QUESTION 1 An building with a cost of R400 000 is leased by A

can the tutors unpack the solutions on the attached document.

image text in transcribed 1. QUESTION 1 An building with a cost of R400 000 is leased by A ltd. The company policy is to depreciate their Property, plant and equipment at 20% per annum. SARS allows a wear and tear allowance on buildings of 10%.The tax shield lost as a result of not purchasing the asset is: R40 0 00 R80 00 0 R11 20 0 R22 40 0 10 points 1. QUESTION 2 Maintenance costs will begin in year 2 at an amount of R85 000. Inflation is expected to remain at 6% for the next 3 years and thereafter will be 5%. What will the cost of maintenance be in year 4? R94 6 05 10123 6 10028 2 93713 10 points QUESTION 3 1. Company H is considering leasing an item of PPE to the value of R800 000, currently it would be able to earn a return of 12% if it were to invest the money in a fixed deposit with their bank for 5 years. The interest is not reinvested in the fixed deposit. The lease payments will be R180 000 per year for 5 years. The company will not utilize the invested money to pay the lease payments. If the company decides to purchase the asset for cash what will be the opportunity cost relating to the interest during year 2? R74 400 R96 00 0 R21 60 0 R107 5 20 10 points QUESTION 4 1. A ltd buy a Excavator, the excavator has a cost price of R5 000 000. If the company purchases the asset before the end of the current year, they will receive a 20% discount. In addition to the purchase price, they will be required to pay a fee equal to 10% of the cost to the company of the asset in year 4. Inflation is 6% per annum. How much will the company have to pay in year 4 if they purchase the asset now? R400 00 R500 00 R595 08 R476 06 0 0 5 4 10 points QUESTION 5 1. The Lease Vs Buy calculation only takes into consideration relevant costs. A relevant cost is a cost that only relates to a specific management decision, and which will change in the future as a result of that decision True False 10 points QUESTION 6 1. A ltd buy a Excavator, the excavator has a cost price of R5 000 000. If the company purchases the asset before the end of the current year, they will receive a 20% discount. In addition to the purchase price, they will be required to pay a fee equal to 10% of the cost to the company of the asset in year 4. Inflation is 6% per annum. How much will the company have to pay in year 4 if they purchase the asset next year? R400 0 00 R500 0 00 R595 508 R476 406 10 points 1. QUESTION 7 Abco Ltd needs some new equipment. The equipment would cost R100,000 if purchased and would be depreciated straight-line over 5 years. SARS allows wear and tear of 25% on equipment. No salvage is expected. Alternatively, the company can lease the equipment for R25 000 per year over 5 years. Tax rate is 28%. After tax cost of debt is 8%. Abco will need to hire an additional employee to use this machine at a cost of R40 000 per annum Which of the following is not an incremental cash flow? After - tax lease payment Lost wear and tear shield Cost of the new employee Cost of the equipment 10 points 1. QUESTION 8 JT Ltd will has the following cashflows relating to a lease vs buy decision: Y = 100 Y = (25) Y = (25) Y = (25) Y = (25) Y = (18) The company has a pre tax cost of debt of 11.11% The Net advantage of leasing (NAL) is: 4946, the company should not lease the asset 4946, the company should lease the asset 11991, the company should lease the asset 11991, the company should lease the asset 10 points QUESTION 9 1. Swift Ltd wants to enter into a lease contract. The lease is payable in 5 instalments of R700 000, The lease payments are payable in advance. Assume a tax rate of 28% What is the net effect on the above information on the cashflows in year 2? -R504 000 -R700 000 R196 00 0 0 10 points 1. QUESTION 10 Swift Ltd wants to enter into a lease contract. The lease is payable in 5 instalments of R700 000, The lease payments are payable in advance. Assume a tax rate of 28% What is the net effect on the above information on the cashflows in year 5? -R504 000 -R700 000 R196 00 0 0

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