QUESTION 15

A company has the choice of either buying a machine outright for 180,000 which it will scrap in three years time for nothing, but which will attract a 100% first year capital allowance: or of leasing the machine for three years for an annual payment of 60,000 at the start of each year. The company receives tax benefits one year in arrears and the first tax benefit, whether leasing or borrowing, occurs in year 1. The company can borrow at a pre-tax rate of 10% and corporation tax stands at 30%. Round up your answer to the nearest 100. Which of the following is true?

	A.	Leasing is beneficial by 78,800
	B.	Leasing is beneficial by 22,700
	C.	Leasing is beneficial by 8,300
	D.	Both cost the same
	E.	Buying is beneficial by 8,300