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show all the steps and calculations huis) A Lid needs to acquire advanced security monitoring equipment costing R600 000. The equipment can be ased or
show all the steps and calculations huis) A Lid needs to acquire advanced security monitoring equipment costing R600 000. The equipment can be ased or leased. The after-tax cost of the debt is 7% and the company is in the 30% tax bracket The terms of the lease and purchase plans are as follows: Lease The leasing agreement would require annual end-of-year payments of R139 500 over the five years. The lessee will exercise its option to purchase the equipment for R55 000 at the termination of the lease. Purchase The cost could be financed with a five year, 15% loan, requiring equal annual payments of R178 987 The company will pay R10 000 from year 3 to year 5 only for a service contract that covers all costs. The straight-line method of depreciation is used. The company plans to keep the machine beyond its five year recovery period. The interest payments for the respective five years are R90 000; R76 652; R61 302; R43 649 and R23 332. Required: 3.1 Determine the after-tax cash outflows and the net present value of the cash outflows under each alternative round off to the nearest rand). 3.2 (23 marks) Which alternative would you recommend? Why? (2 marks)
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