Q.2 Compare / contrast. Why are these two different? Write one pertinent and original real-life example from the corporate/business world that represents the application of following concepts.

I.Cost of lease financing with debt financing.

II.Operating lease with finance lease.

III.Primary lease with secondary lease.

IV.Sales and leaseback with direct lease.

Ross Limited is interested in acquiring the use of a generator costing Rs. 800,000/-. It has two options:

1.to borrow the amount at18% per annum repayment in 5 equal annual installment at the end of each year or

2.to take on lease the asset for a period of 5 years at the end of each year of Rs. 175,000/-

The corporation tax rate is 35% and the depreciation is allowed on straight line method. The asset will have a salvage value of Rs. 180,000 at the end of the 5^th year.

Required:

You are required to evaluate each source of financing and advice the company about lease or buy decision.