Leaminger Inc has decided it must replace its major turbine machine on $31$ December $20$X$2.$ The machine is essential to the operations of the company. The company is$,$ however, considering whether to purchase the machine outright or to use lease financing. Purchasing the machine outright The machine is expected to cost $$360,000$ if it is purchased outright, payable on $31$ December $20$X$2.$ After four years the company expects new technology to make the machine redundant and it will be sold on $31$ December $20$X$6$ generating proceeds of $$20,000.$ Capital allowances for tax purposes are available on the cost of the machine at the rate of $25\%$ per annum, reducing balance. A full year$$s allowance is given in the year of acquisition but no writing down allowance is available in the year of disposal. The difference between the proceeds and the tax written down value in the year of disposal is allowable or chargeable for tax as appropriate. Leasing The company has approached its bank intending to arrange a lease to finance the machine acquisition. The bank has offered two options concerning leasing which are as follows: Finance Lease Operating Lease Contract length $($years$)41$ Annual rental $($$$)135000140000$ First rent payable $31/12/20$X$331/12/20$X$2$ General For both the purchasing and the finance lease option, maintenance costs of $$15,000$ per year are payable at the end of each year. All lease rentals $($for both finance and operating options$)$ can be assumed to be allowable for tax purposes in full in the year of payment. Assume that tax is payable one year after the end of the accounting year in which the transaction occurs. For the operating lease only, contracts are renewable annually at the discretion of either party. Leaminger Inc has adequate taxable profits to relieve all its costs. The rate of corporation tax can be assumed to be $30\%.$ The company$$s accounting year$-$end is $31$ December $20$X$2.$ The company$$s annual after$-$tax cost of capital is $10\%.$ REQUIRED: a$)$ Calculate the net present value at $31$ December $20$X$2,$ using the after tax cost of capital, for i$.$ Purchasing the machine outright. ii$.$ Using the finance lease to acquire the machine; and iii. Using the operating lease to acquire the machine. Recommend the optimal method. $(15$ marks$)$ b$)$ Assume now that the company is facing capital rationing up until $30$ December $20$X$3$ when it expects to make a share issue. During this time the most marginal investment project, which is perfectly divisible, requires an outlay of $$500,000$ and would generate a net present value of $$100,000.$ Investment in turbines would reduce funds available for this project. Investments cannot be delayed. Calculate the revised net present values of the three options for the turbine given capital rationing. Advise whether your recommendation in $($a$)$ would change. $(6$ marks$)$ c$)$ As their business advisor, prepare a report for the directors of Leaminger Inc that assesses the issues that need to be considere