Question
: Your company is evaluating a lease financing facility for use of an piece of equipment that offers annual beginning-of-year rental payments of RM35,000.00 for
: Your company is evaluating a lease financing facility for use of an piece of equipment that offers annual beginning-of-year rental payments of RM35,000.00 for 4 years. Under this lease contract, all costs will be borne by the lessor. At the end of the primary lease period, your company intend to exercise the option of purchasing the equipment for RM5,000.00. Alternatively, the equipment with an installed cost of RM100,000.00, can be financed with a 4-year loan. This loan, calculated on yearly reducing balance, will cost your company 12% per annum. Depreciation is on straight line towards zero salvage over the 4-year useful life of the equipment. Annual maintenance, payable at the end of each year, would cost RM5,000.00. Annual insurance premium, payable in advance would be RM2,000.00. Your company is in the 30% tax bracket. Which option should your company choose? [Hint: Use the Net Advantage to Leasing (NAL) to decide]
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