FIN3701 Assignment 2
Semester 2 2024 (232193) -
DUE 16 September 2024
QUESTIONS WITH COMPLETE ANSWERS
[School]
[Course title]
, FIN3701 Assignment 2 Semester 2 2024 (232193) - DUE 16 September 2024
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 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 Calculate the annual interest expense deductible for tax purposes for each of the five years. (5
marks)
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through EFT, credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying this summary from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller reinah44. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy this summary for R46,59. You're not tied to anything after your purchase.