Read the scenario below and answer the questions that follow.

A company is considering acquiring a new machine that costs R$5$ million. The machine will have a useful life of five years and is expected to generate revenues of R$3$ million in the first year. Revenues are expected to increase by $10\%$ per year for the duration of the useful life of the machine.

Operating costs, excluding depreciation, are expected to be $55\%$ of revenue each year. The machine will be depreciated on a straight$-$line basis over five years. The machine is expected to have a resale value equal to $20\%$ of its cost at the end of its useful life.

The company can either lease or purchase the machine. The following information relates to these two options:

Purchase:

The company can purchase the machine through a five$-$year bank loan at an interest rate of $12\mathrm{.}50\%$ per annum. Insurance and maintenance costs will amount to R$280000$ per year.

Lease:

The company can lease the equipment at an annual lease rental cost of R$1\mathrm{.}2$ million, payable in advance over five years. The tax deduction relating to the lease payments will occur at the end of each year. Under the lease agreement, the lessor will be responsible for the insurance and maintenance of the equipment.

The corporate tax rate is $28\%.$

$3\mathrm{.}2$ Assuming that the company decides to acquire the machine, use the relevant calculations to advise the company on whether it should purchase or lease the machine.

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