QUESTION ONE

Kennedy Electronics, Inc., has decided to acquire a piece of equipment costing $K148,000$ to be used in the fabrication of microprocessors. If it were to lease finance the equipment, the manufacturer will provide such financing over $7$ years. The terms of the lease call for an annual payment of $K27,500.$ Lease payments are made in advance. The lessee is responsible for maintenance of the equipment, insurance, and taxes. If the asset is purchased, Kennedy Electronics would finance it with a $7-$year term loan at $12$ percent. The company is in a $40$ percent tax bracket. The asset falls in the $5-$year property class for accelerated cost recovery $($depreciation$)$ purposes. Accordingly, the schedule below is used:

$\backslash$table$[[$Year$,1,2,,,,],[$Depreciation$,20\mathrm{.}00\%,32\mathrm{.}00\%,19\mathrm{.}20\%,11\mathrm{.}52\%,11\mathrm{.}52\%,5\mathrm{.}76\%$