Musandam Company is planning to purchase a new machine for OMR 750,000. It will cost OMR 7,500 to transport the machine to the company location. The useful life of the new machine is four years. The machine is expected to be sold for OMR 50,000 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 13%.

Alternatively, company has an option to lease the same machine with an annual lease rental of OMR 250,000. If the company acquire the machinery on lease, the maintenance cost should be incurred by the company and insurance will be paid by the lessor.

1. What is the total cost per year if the company purchase the machine?

a) OMR 427,850

b) OMR 425,975

c) OMR 426,875

d)OMR 213,925

2. What is the total cost per year if the company lease the machine?
3. a) OMR 150,000
4. b) OMR 402,500
5. c) OMR 400,000
6. d) OMR 200,000

3. Suggest the best option for Musandam Company.
4. a) Neither lease no purchase the machine.
5. b) Purchase the machine
6. c) Lease the machine
7. d) Lease or purchase no difference