Question: QUESTION 3 East Star Bhd is considering a proposal to acquire high tech machine. The machine will cost RM500,000. Various sources of financing being considered.

QUESTION 3 East Star Bhd is considering a proposal to acquire

QUESTION 3 East Star Bhd is considering a proposal to acquire high tech machine. The machine will cost RM500,000. Various sources of financing being considered. Mr.Jonny wish to know whether lease financing could be a feasible choice. The finance department has collected following information. Yearly lease payment is $120,000, payable at beginning of year. The machine with a 5-year of economic life. Alternatively, East Star Bhd can borrow the required $500,000 at 10 percent (before-tax). The machine is estimated to have a residual value is $50,000. The company uses straight line method for depreciation. The lease qualifies as a guideline lease. a. Based on Net Advantage for Leasing (NAL) method, provide you recommendation. Should East Star Bhd buy the machine of opt for lease financing (10 marks)

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