Turner plc is considering whether to buy a machine costing K100,000 through a three-year loan with interest at 14% per year. The machine would have zero scrap value at the end of it's three -year life. Alternatively, the machine could be leased for K320,000 per year, payable in arrears. Corporate tax is payable at 30 percent and capital allowances are available over the life of the machine on a 25% reducing balance basis. Calculate whether the company should lease or buy the machine.

Turner plc is considering whether to buy a machine costing K100,000 through a three-year loan with interest at 14% per year. The machine would have zero scrap value at the end of it's three -year life. Alternatively, the machine could be leased for K320,000 per year, payable in arrears. Corporate tax is payable at 30 percent and capital allowances are available over the life of the machine on a 25% reducing balance basis. Calculate whether the company should lease or buy the machine.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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