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Question 2 Standard Tyres & Services (STS) is negotiating a lease on new equipment that would cost RM85,000.00 if purchased. The equipment, with its useful

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Question 2 Standard Tyres & Services (STS) is negotiating a lease on new equipment that would cost RM85,000.00 if purchased. The equipment, with its useful life of 4 years, will be depreciated using the straight line method towards a RM5,000.00 salvage value. The new equipment would be used for 4 years and then sold, because the firm plans to move to a new premise at that time. A maintenance contract on the equipment would cost RM3,000.00 per year, payable at the end of each year. To purchase the equipment, STS could obtain a 4-year loan at a before-tax cost of 10% p.a., with interest calculated on a yearly reducing balance. Annual instalments are to be paid at the end of the year. Alternatively, STS could lease the equipment for 4 years for a lease payment of RM30,000.00 per year, payable at the beginning of each year. The lease payment is inclusive of maintenance. The firm is in the 40% tax bracket. If there is a positive Net Advantage to Leasing, STS will lease the equipment. Otherwise, it will buy it. What is the NAL

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