XXXX Contractors are preparing to replace critical earthmoving plants and equipment so that they can consolidate future

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XXXX Contractors are preparing to replace critical earthmoving
plants and equipment so that they can consolidate future bids. The
anticipated cost of the digger with a maximum-sized bucket is
£85,000. It needs to be bought in 4 years’ time. However, the
industrial development fund is willing to loan XXXX contractors at
a rate of 12% per annum if they can purchase the digger today. The
accountant thinks there is a possibility of outright purchase of
the digger in 4 years’ time if the company can create a sinking
fund at a rate of 6% per annum
Task: Explain how the financial health of XXXX contractors
is able to influence the decision of outright purchase using a loan
today or the creation of a sinking fund for the next 4 years