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FIN3701 Assignment 2 COMPLETE ANSWERS) Semester 2 2024 (232193) - DUE 16 September 2024
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,
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