Required :

2.1 calculate the cost that will be incurred from the ownership of the trailer to ABC Logistic.

2.2 Discuss three disadvantages of leasing.

QUESTION TWO [25] ABC Logistics is considering the acquisition of a trailer for R 500 000, either on an outright purchase or lease. This will be a 5year lease/contract and it will require a down payment of R100 000 and further payments of R100 000 per year at the end of each year. If the trailer is owned, the service and maintenance charges will be R20 000 p.a. but if the trailer is leased this charge is carried by the lessor. The salvage value of the trailer in 5 years' time is expected to be R 50 000. The company uses the straight-line method of depreciation. The prevailing tax rate is 30% and the after tax cost of debt is 10%