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Grand Goals Bhd . , is in the business of manufacturing steel utensils. The firm is planning to diversify and add a new product line.
Grand Goals Bhd is in the business of manufacturing steel utensils. The firm is planning to diversify and add a new product line. The company require a machinery and can either purchase or get it on lease basis The machine can be purchased for $ It is expected to have a useful life of years with salvage value of $ after years. The purchase can be financed by a percent loan repayable in equal annual instalments inclusive of interest becoming due at the end of each year. Alternatively, the machine can be taken on yearend lease rentals of $ for years. You may assume the following: a The company follows written down value method of depreciation, the rate of depreciation being percent. b Tax rate is at and cost of capital is percent c Lease rents are to be paid at the end of the year. d Maintenance expenses is estimated at $ per year to be borne by the lessee. Required Advice the company, which option it should choose.
Grand Goals Bhd is in the business of manufacturing steel utensils. The firm is
planning to diversify and add a new product line. The company require a machinery and
can either purchase or get it on lease basis
The machine can be purchased for $ It is expected to have a useful life of
years with salvage value of $ after years. The purchase can be financed by
a percent loan repayable in equal annual instalments inclusive of interest
becoming due at the end of each year. Alternatively, the machine can be taken on
yearend lease rentals of $ for years. You may assume the following:
a The company follows written down value method of depreciation, the rate of
depreciation being percent.
b Tax rate is at and cost of capital is percent
c Lease rents are to be paid at the end of the year.
d Maintenance expenses is estimated at $ per year to be borne by the
lessee.
Required
Advice the company, which option it should choose.
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