Determine whether post-a-parcel sdn bhd should purchase

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Post-A-Parcel Sdn Bhd. has decided to buy a fleet of new light-duty trucks. The purchase will cost the  company RM800,000, and the light-duty trucks would each have a useful life of ten years with a total trade-in value of RM150,000 at the end of the tenth year.The company could purchase the trucks for cash, using bank loan facilities for which the current rate of interest is 8% before tax. If the trucks are purchased now, the company will be able to claim a taxdepreciation allowance of 100% in Year 1.

Alternatively, the company could lease the trucks that would entail the payment of RM125,000 at theend of each year for the next ten years. The lease payments are fully tax-allowable. The tax rate is 25%. All the tax payables and tax reliefs are a year delayed.

Problem 1: Determine whether Post-A-Parcel Sdn. Bhd. should purchase or lease the trucks. You are required to show the relevant workings.

 

Reference no: EM133006324

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