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Evaluate source of financing and advice company

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Reference no: EM132544283

Ross Limited is interested in acquiring the use of a generator costing Rs. 800,000/-. It has two options:

1. to borrow the amount at18% per annum repayment in 5 equal annual instalment at the end of each year or

2. to take on lease the asset for a period of 5 years at the end of each year of Rs. 175,000/-

The corporation tax rate is 35% and the depreciation is allowed on straight line method. The asset will have a salvage value of Rs. 180,000 at the end of the 5th year.

Required:

You are required to evaluate each source of financing and advice the company about lease or buy decision.

Reference no: EM132544283

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