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Outlining the effect on the business cash

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Reference no: EM132562352

Question - The company currently operates from rented premises at a cost of £1,500 per month, however, this rental agreement ends on 30 September 2019. The company has two options that it is considering:

Option one - The company renews the rental agreement for a further 5 years from 1 October 2019 with a 10% increase in the monthly rent payment.

Option two - The company purchases the property it currently rents for £250,000 plus legal fees of £7,500 on 1 October 2019. The company will fund the legal fees but requires a loan to finance the remaining purchase. The loan will be over a 10 year period and is to be repaid in full at the end of that time. The interest rate on the loan has been fixed at 3% per annum over the period of the loan, payable 6 monthly in arrears.

Required - Review each of these options outlining the effect on the business's cash and fully explain the impact on future financial statements for each of these options.

Reference no: EM132562352

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