FIN3701 Assignment 2 COMPLETE ANSWERS) Semester 2 2024 (232193) - DUE 16 September 2024
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, FIN3701 Assignment 2 COMPLETE ANSWERS) Semester
2 2024 (232193) - DUE 16 September 2024 ; 100%
TRUSTED Complete, trusted solutions and explanations.
QUESTION 1 [25 marks] Bakoni Group (Pty) Ltd is
considering investing in a new cable car. The company can
either borrow the funds required to purchase the cable car or it
can enter into a finance lease with a reputable finance house.
The current tax rate is 28%, and tax is payable in the year that it
is incurred. The South African Revenue Services (SARS) will
allow lease, interest and maintenance costs to be deducted for
tax purposes. Assume that Bakoni Group (Pty) Ltd has sufficient
taxable income to ensure that all deductions can be made
immediately (i.e. there is no assessed loss). Lease option:
Finance lease payments of R90 000 per year, payable in arrears,
will need to be made for a period of five years. Bakoni Group
(Pty) Ltd will be responsible for maintenance costs of R50 000
per year, beginning in year 2. Purchasing option: The company
can get the funds required to purchase the cable car through a
five-year loan from Absa Bank at an interest rate of 10%. The
new cable car can be purchased at a cost of R400 000. Bakoni
Group (Pty) Ltd will qualify for a wear-and-tear allowance of
25% per year on the straight-line method from SARS. The
estimated residual value of the asset at the end KINDLY NOTE
THAT THERE ARE TWO COMPULSORY ASSIGNMENTS
FOR THE SECOND SEMESTER. 11 of five years is R60 000.
Bakoni Group (Pty) Ltd will be responsible for maintenance
costs of R50 000 per year, beginning in year 2. REQUIRED:
Purchase option 1.1 Calculate the annual payment. (2 marks) 1.2
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