M & M Company is planning to purchase a cotton bailing machine for OMR 750,000. It will cost OMR 7,500 to transport the bailer to the company location. The useful life of the new machine is five years. The machine is expected to be sold for OMR 30,000 at the end of its useful life. The company is using straight line method of depreciation. The annual maintenance and repair costs is expected to be OMR 150,000. The annual insurance premium will be OMR 2,500. The cost of capital is 11%.

Alternatively, company has an option to lease the same cotton bailing machine with an annual lease rental of OMR 200,000. If the company acquire the machinery on lease, the maintenance cost should be incurred by the company and insurance will be borne by the lessor.

1. What is the total cost per year if the company purchases the cotton bailing machine?

a-OMR 379,825

b-OMR 381,325

c-OMR 298,000

d-OMR 425,975

2. What is the total cost per year if the company leases the cotton bailing machine?

a-OMR 100,000

b-OMR 150,000

c-OMR 350,000

d-OMR 352,500

3. Suggest the best option for M & M Company.

a-Purchase the machine

b-Lease or purchase no difference

c-Lease the machine

d-Neither lease no purchase the machine