Encik Khai Bahar, the Hyundoi Holding Berhad's president, need an equipment to expand his business. Sulama Equipment Berhad has offered to sell Hyundoi Holding Berhad the necessary equipment at a price of RM100,000. It will be completely obsolete in five years and the estimated salvage value is RM10,000. If Encik Khai Bahar purchases the equipment, it will be depreciated using straight-line for five years.

Alternatively, the company can lease the equipment from Subaru Leasing Enterprise. The lease contract calls for five annual payments of RM30,000 per year, payable at the beginning of the year. Additionally, Hyundoi Holding Berhad must make a security deposit of RM3,000 that will be returned when the lease expires.

The company options are to borrow the money at 20% to buy the equipment from Sulama Equipment Berhad or to lease it from Subaru Leasing Enterprise. The company has a marginal tax rate of 30%.

From the above information, you are required to answer the questions below.

1. Discuss TWO (2) benefits of leasing to Encik Khai Bahar. (4 Marks)

1. Recommend Encik Khai Bahar whether he should purchase or lease the equipment. (6 Marks)

(Total: 10 Marks)