Question $1(20$ marks $)$

Grand Goals Bhd$.,$ is in the business of manufacturing steel utensils. The firm is planning to diversify and add a new product line. The company require a machinery and can either purchase or get it on lease basis $.$

The machine can be purchased for $$15,000,000.$ It is expected to have a useful life of $5$ years with salvage value of $$1,000,000$ after $5$ years. The purchase can be financed by a $20$ percent loan repayable in $5$ equal annual instalments $($ inclusive of interest$)$ becoming due at the end of each year. Alternatively, the machine can be taken on year$-$end lease rentals of $$4,500,000$ for $5$ years. You may assume the following:

$($a$)$ The company follows written down value method of depreciation, the rate of depreciation being $25$ percent.

$($b$)$ Tax rate is at $24\%$ and cost of capital is $18$ percent

$($c$)$ Lease rents are to be paid at the end of the year.

$($d$)$ Maintenance expenses is estimated at $ $300,000$ per year to be borne by the lessee.

Required

Advice the company, which option it should choose.

$(20$ marks $)$