TK Travel (Pty) Ltd is considered the purchase of a tanker for 400 000 cash or lease the tanker. This will be a 5 year lease/contract and it will require a down of 100 000 and further payments of 100 000 per year at the end of each year. If tanker is owned, the service and maintenance charges will be15 000pa (per annum), but if the tanker is leased this charge is carried by the lessor. The salvage value of the tanker in 5 years time is expected to be 40 000. The company uses the straight line method of depreciation. The prevailing tax rate is 27% and the after tax cost debt is 10%

Required :

Calculate the cost of owing against the cost of leasing and advice on the best option. Justify your answer