Question 5 [55] The management of Farmers Friend (Pty) Ltd is considering two options to finance the surveillance drone should the project team recommend purchasing the drone. The most suitable drone available in the market requires an initial investment of R520 000, all costs included. The cash flows must be adjusted for the effects of the wear and tear allowance and taxation. The options are as follows: 1. Securing a medium-term loan bearing an annual interest rate of 13%. The loan is repayable in three instalments, payable at the end of each of the three years. The instalments are R220 231 per year. The NPV8%, 3 = R12 915 and the NPV14%, 3 = (R40 516). 2. A financial lease repayable over three years at a cost of R212790 per year. The NPV10%, 3 = R11 755 and the NPV14%, 3 = (R22 314). Additional information: All payments are made at the end of each year. The corporate tax rate is 28% The loan will qualify as a financial instrument as per section 24J of the Income Tax Act. The yield-to- maturity method will apply. From an ownership perspective, the ownership of the leased asset will vest in the lessor. The lessee will be allowed to deduct the finance lease payments in terms of Section 11(a) of the Income Tax Act. Required: Show all calculations and round off all answers to the nearest cent. Determine which financing option will be the most cost-efficient option for the company. Use the method that incorporates the effect of Section 24J of the Income Tax Act for purposes of calculating the effective cost (Internal rate of Return of the medium-term loan