Question Of : A Client , Fal Staff Limited , has asked you to prepare a comparison of purchase versus lease options in regard to the acquisition of new office equipment . The equipment costs $ 475, 000 fully installed . Option 1: Purchase Equipment in client's name . Fal Staff Limited to provide a deposit of $100 , 000 . Fal Staff Limited to arrange with the bank a five year interest only loan , for the balance of the equipment cost . - As it is to be an interest only loan , the principal to be repaid at the end of the load period . Interest is payable at the end of each year at 12% per year . Depreciation is based on 20* Prime Cost . Option 2: Lease Equipment from Mojo Finance Limited . - Mojo Finance Limited offer lease payments of $710 , 000 payable at the beginning of each of the five years .` * A $35, 000 residual is due to be paid to Mojo Finance Limited at the end of the five* years , whatever option is exercised . Company tax rate is 27 . 5^ payable at the end of the year . Cost of Capital is 10%` Required : Using Standard Financial Analysis Techniques identify financial flows , trends in returns and adjustments in Asset Values :` ( a ) Calculate the Net Present Value of the Purchase Option . ( b ) Calculate the Net Present Value of the Lease Option . ( C ) Recommend which option should be taken and why ?"