Question
the management of the company has decided to acquire a machine which cost shs 6.3 million and has an operational life of four years, with
the management of the company has decided to acquire a machine which cost shs 6.3 million and has an operational life of four years, with an expected scrap value of zero.tax is payable at 30% on operating cash flow one year in arrears.the capital allowance are granted at 25% a year on a reducing balance basis.the company has an opportunity either to purchase the machine or lease it under a finance lease arrangement,at an annual lease rent of shs 2 million p.a for four payable at the beginning of each year.the company can borrow to finance the acquisition at 10% interest rate. Required: a) Should the company lease or buy the machine? (7 marks
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