M & M Company is planning to purchase a cotton – bailing machine for OMR 375,000. It will cost OMR 3,750 to transport the bailer to the company location. The useful life of the new machine is five years. The machine will be sold for OMR 25,000 at the end of its useful life. The company is using straight – line method of depreciation. The annual maintenance and repair costs is expected to be OMR 75,000. The annual insurance premium will be OMR 1,250. The cost of capital is 10%.

Alternatively, company has an option to lease the same cotton – bailing machine with an annual lease rental of OMR 125,000. If the company acquire the machinery on lease, the maintenance cost should be incurred by the company and insurance will be borne by the lessor.

1. What is the total cost per year if the company purchase the cotton – bailing machine?  

A) 183750

B) 175000

C) 184875

D) 184125

2. What is the total cost per year if the company lease the cotton – bailing machine?

A) 200000

B) 50000

C) 125000

D) 75000