Big City Life Cinema (BCLC) is an exclusive movie theatre in Pretoria. You are the accountant for this registered VAT vendor. BCLC is in the process of opening a new theatre and needs to decide whether a new building will be rented or bought.
You have the following information at your disposal:
a) If the building is bought at a cost price of R2,130,193.36 including 14% VAT (refer to cell B4), a loan will be acquired and the following terms are applicable. Interest will compound monthly at an annual rate of 5% (refer to cell B6) at the beginning of every month. The loan will be settled in full at the end of the loan term of twenty years (refer to cell B5).
b) The monthly rental amount excluding VAT. (Refer to cell B10).
c) The decision of whether the building will be bought or rented will be based on a comparison between the monthly rental amount including VAT (refer to cell B12) and the monthly installment on the loan (refer to cell B7). The decision to buy or rent will fall on the lowest amount. (Please assume that the two amounts will never have the same value).
d) The decision of whether the building will be bought or rented will be based on a comparison between the monthly rental amount including VAT (refer to cell B12) and the monthly installment on the loan (refer to cell B7). The decision to buy or rent will fall on the lowest amount. (Please assume that the two amounts will never have the same value).
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