Vaal Engineering Ltd is considering acquiring a new machine for expansion purposes in one of its branches in Vanderbijlpark at a cost of R600 000. The company has the option to lease, or borrow funds from FNB Assets Bank and buy it instead. The company will borrow from the FNB Assets Bank money at an interest rate of prime rate of 12% per annum. If the loan is obtained from the bank it will be repaid over four (4) years period. Under this option the firm will qualify for a wear and tear allowance of 25% per annum on the straight-line method from SARS. The estimated residual value of the asset at the end of 4 years is R60 000 and the firm would prefer to sell the machine at that juncture. The company can lease the new machine from General Engineering Company, a firm that manufactures these kind of machines at R210 000 per year, payable in arrears for a period of 4 years. The firm can purchase the engineering machine for R60 000 at the expiry of the lease period. Under either option, Vaal Engineering Ltd will be responsible for maintenance costs at 5% of the cost price