Your company is considering acquiring an additional computer to supplement its time-share computer services to its clien

[answerhappygod]

Your company is considering acquiring an additional computer to
supplement its time-share computer services to its clients. It has
two options:
Forecast revenues are as follows:
Year
1
2
3
Amount (K million)
22.5
25
27.5
Annual operating costs excluding depreciation and lease rentals
of computer are estimated at K9 million with an additional K1
million for start-up and training costs at the beginning of the
first year. These costs are to be borne by the lessee. Your company
will borrow at 16% interest to finance the acquisition of the
computer. Repayments are scheduled as follows:
Year end
1
2
3
Principal
K5 million
K8.5 million
K8.5 million
Interest
K3.52 million
K2.72 million
K1.36 million
The company uses straight line method to depreciate its assets
and pays 50% tax on its income. The management approaches you to
advice. Which alternative will you recommend and why?