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Question 2: (20 marks) You are evaluating a lease that offers annual payments of $17,000 for five years. Under this lease you are responsible for
Question 2: (20 marks) You are evaluating a lease that offers annual payments of $17,000 for five years. Under this lease you are responsible for maintenance and insurance, total cost of S2,500 per year. At the end of the lease you can purchase the asset for $5,000. All payments and expenses are paid at the end of the year Alternatively, you can obtain a $60,000 five year loan to purchase the asset. This loan, calculated on a yearly reducing balance cost you 12%. Depreciation is on straight line over the 5-year useful life of the asset. Annual maintenance and insurance cost totaled $2,500, taxes are 40% and the discount rate is 10%. a) Which option should you choose? You are required to show the Net Advantage to Leasing [NAL. (17.5 marks) b) Identify the financial concepts that can be used to help make a lease versus purchase (2.5 marks) decision
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