Sohar steel LLC is planning to purchase a building for OR.800,000. Acquisition cost of building includes OR.90,000 for land area and company will incur a renovation cost of OR.70,000. The estimated annual cost of the building includes Repairs and maintenance is OR.25,000, Property tax is OR.16,000, Insurance 5%. Annual Depreciation is based on estimated economic life of 20 years with no salvage value. The cost of capital for the company is 10%. Alternatively, company can lease the building with an annual rent of OR.80,000 and incur cost of property taxes, insurance, and necessary repairs.
You are required to calculate the total annual cost, if Sohar company purchase the asset.

a. RO.210,500

b. RO.184,500

c. RO.222,500

d. None of the options

Answer rating: 100% (QA)

CALCULATION OF TOTAL ANNUAL COST IF THE ASSET IS LEASED COSTS OR LEASE ... View the full answer