Reference no: EM133071371
Encik Khai Bahar, the Hyundoi Holding Berhad's president, need an equipment to expand his business. Sulama Equipment Berhad has offered to sell Hyundoi Holding Berhad the necessary equipment at a price of RM100,000. It will be completely obsolete in five years and the estimated salvage value is RM10,000. If Encik Khai Bahar purchases the equipment, it will be depreciated using straight-line for five years.
Alternatively, the company can lease the equipment from Subaru Leasing Enterprise. The lease contract calls for five annual payment of RM30,000 per year, payable at the beginning of the year. Additionally, Hyundoi Holding Berhad must make a security deposit of RM3,000 that will be returned when the lease expires.
The company options are to borrow the money at 20% to buy the equipment from Sulama Equipment Berhad or to lease it from Subaru Leasing Enterprise. The company has a marginal tax rate of 30%.
From the above information you are required to answer the questions below.
- Discuss TWO (2) benefits of leasing to Encik Khai Bahar
- Recommend Encik Khai Bahar whether he should purchase or lease the equipment
Question
Seungri Berhad wishes to evaluate the following two alternatives available to acquire a machine.
Lease Alternative
Seungri Berhad can lease the machine under a 5-year lease requiring lease payment of RM5,000 at the end 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 5-year, 15% interest. Seungri Berhad will pay RM1,000 per year for a service contract that covers all maintenance costs; insurance and other costs will also be met by Seungri Berhad.
Seungri 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
|
4,000
|
|
2
|
6,400
|
|
3
|
3,800
|
|
4
|
2,400
|
|
5
|
2,400
|
Given that the corporate tax rate is 30%.
From the above information you are required to answer the questions below.
Should Seungri Berhad acquire the machine on lease or buy? Show your workings.
|
Field industries-bond nominal coupon interest rate
: Their nominal yield to maturity is 9.25%, they pay interest semiannually, and they sell at a price of $925. What is the bond's nominal (annual) coupon interest
|
|
Produce visual data representation
: When looking at the methods that are available to produce visual data representation.
|
|
Calculate the rate of return on investment
: Wyatt Inc. has income from operations of $60,000, invested assets of $350,000, and sales of $750,000. Use a formula to calculate the rate of return
|
|
Can leadership be taught
: Ethical issues are complex and multi-faceted, often impacting multiple disciplines besides own. you will be developing your leadership skills using ethical lens
|
|
Benefits of leasing to encik khai bahar
: Encik Khai Bahar, the Hyundoi Holding Berhad's president, need an equipment to expand his business. Sulama Equipment Berhad has offered to sell Hyundoi Holding
|
|
What is the total increase in income for edwards
: The two divisions have recently negotiated a transfer price of $50 per unit for the 20,000 units. What is the total increase in income for Edwards
|
|
Find the safety inventory for the speakers
: The store pays $ 300 for aunit and it costs $ 120 to place the order. Find the safety inventory for the speakers
|
|
Find combination of three equal payments
: What single payment, made 45 days from now, is economically equivalent to the combination of three equal payments of $1750 each: one due 75 days ago, the second
|
|
Types of experience and judgment a hedge fund manager
: 1) Describe what types of experience and judgment a hedge fund manager should look for as she hires people to build a merger arbitrage team.
|