Seroja Berhad (Seroja) wishes to evaluate the following two alternatives available to acquire a machine:   Lease Alternative   Seroja can lease the machine under a 5-year lease requiring lease payment of RM5,000 at the beginning of each year. All maintenance costs will be borne by the lessor and the insurance and other costs will be borne by the lessee.    “Borrowing to Buy” Alternative   The machine costs RM20,000 and will have a 5-year life. The purchase will be financed by a 5year, 15% interest. Seroja will pay RM1,000 per year for a service contract that covers insurance and other costs.   Seroja Berhad plans to keep the machine and use it beyond its 5-year life.   The machine will be depreciated as given below:   Year Depreciation RM 1 5,000 2 4,000 3 3,000 4 2,000 5 1,000   Given that the corporate tax rate is 30%. Prepare the Cash Flows Analysis by clearly showing the Net Advantage of Leasing (NAL).                                                                                                                                             (6 Marks

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
icon
Related questions
Question

 

Seroja Berhad (Seroja) wishes to evaluate the following two alternatives available to acquire a machine:

 

Lease Alternative

 

Seroja can lease the machine under a 5-year lease requiring lease payment of RM5,000 at the beginning of each year. All maintenance costs will be borne by the lessor and the insurance and other costs will be borne by the lessee. 

 

“Borrowing to Buy” Alternative

 

The machine costs RM20,000 and will have a 5-year life. The purchase will be financed by a 5year, 15% interest. Seroja will pay RM1,000 per year for a service contract that covers insurance and other costs.

 

Seroja Berhad plans to keep the machine and use it beyond its 5-year life.

 

The machine will be depreciated as given below:

 

Year

Depreciation

RM

1

5,000

2

4,000

3

3,000

4

2,000

5

1,000

 

Given that the corporate tax rate is 30%.

  1. Prepare the Cash Flows Analysis by clearly showing the Net Advantage of Leasing (NAL).

                                                                                                                                            (6 Marks

Expert Solution
steps

Step by step

Solved in 2 steps

Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education