Triple Passion Group (TPG) plans to install a new dryer worth RM1.5 million at their snack processing plant. The acquisition of the asset can be done through a full bank loan with an interest rate of 5 percent per annum, and paid in annual installments for 5 years. Another alternative available at this time is for TPG to lease the machine from the leasing company Local Machinary Leasing (LML) Sdn Bhd. Based on the terms of the lease offered by LML, the financial manager of TPG found that there was some important information related to the machine lease that needed to be examined as follows; i. The dryer will be depreciated according to the straight line method for 5 years. ii. The maintenance cost of the machine is estimated at RM75,000 per year. iii. The current corporate tax rate is 28%. iv. The annual lease fee charged by LML Sdn Bhd is RM400,000 per annum for 5 years. v. During the lease period, the lessee is responsible for paying an insurance charge of RM30,000 annually. vi. If TPG intends to own the machine at the end of the lease period, the company will have to pay a purchase price of RM200,000. Provide cash flow analysis for the alternative of buying the dryer using a bank loan or leasing the machine if the discount rate set by the company is 8 percent?
Triple Passion Group (TPG) plans to install a new dryer worth RM1.5 million at their snack processing plant. The acquisition of the asset can be done through a full bank loan with an interest rate of 5 percent per annum, and paid in annual installments for 5 years. Another alternative available at this time is for TPG to lease the machine from the leasing company Local Machinary Leasing (LML) Sdn Bhd. Based on the terms of the lease offered by LML, the
Provide cash flow analysis for the alternative of buying the dryer using a bank loan or leasing the machine if the discount rate set by the company is 8 percent?
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