Question 3

(a)Great Library Sdn. Bhd. plans to lease 10 photocopy machines for its 10 branches in Malaysia. It is now considering whether to be engaged in operating lease or finance lease. Great Library Sdn. Bhd. does not plan to own the 10 photocopy machines and wish to upgrade or change to newer model in the near future. Besides, Great Library Sdn. Bhd. also hopes that maintenance and repairing services will be provided by the lessor.

Required:

(i)Distinguish any THREE (3) features of operating lease and finance lease. (12 marks)

(ii)Based on the above case, identify a suitable lease for Great Library Sdn. Bhd. You are required to support your answer with ANY TWO (2) reasons. (8 marks)

(b)TGIF Bhd. is planning to raise fund in order to finance its new project in Kuala Lumpur. Currently, TGIF Bhd. highly gears with a debt ratio of 500%. Due to its high financial leverage risk, it has a high cost of borrowing. The existing shareholders of TGIF Bhd. are not willing to issue new ordinary shares as it will lead to dilution of ownership.

As a financial controller of TGIF Bhd., you are required to suggest ONE (1) source of finance for the company based on the above scenario and support your suggestion with ANY THREE (3) reasons.(10 marks)