Kopano Ke Matla Construction is a medium sized company. The company was founded in 2009 with an initial loan of R2,500,000 and a staff compliment of 5. The company now also wants to expand aggressively into the field of road construction.

The company is also considering whether to purchase compaction plant (various rollers). The purchasing of rollers will save the company rental fees of R 1,080,000 per year for the 6 year project life. The plant will cost R5, 000,000. The purchase can be financed through a loan of R2,500,000 and the remainder will be paid with available company savings. The loan has an interest rate of 12,5% and is paid back annually over 4 years. The tax life of the plant is 6 years and the residual value of the plant is R750,000, according to the South African Revenue service. The company tax rate is 28%. It is estimated that the plant will be sold for R1,000,000 at the end of the 6th year. Apply straight line depreciation and use a before-tax MARR of 11%. Evaluate the purchasing option and make a recommendation.