11. Calculate the present value of the cash outflow for the lease alternative. 12. Calculate the present value of the cash outflow for the purchase alternative.
Mortgages
A mortgage is a formal agreement in which a bank or other financial institution lends cash at interest in return for assuming the title to the debtor's property, on the condition that the obligation is paid in full.
Mortgage
The term "mortgage" is a type of loan that a borrower takes to maintain his house or any form of assets and he agrees to return the amount in a particular period of time to the lender usually in a series of regular equally monthly, quarterly, or half-yearly payments.
Lester Corporation is determining whether to lease or purchase new equipment. The firm is in the 38% tax bracket, and its after-tax cost of debt is currently 7%. The terms of the lease and the purchase are:
Lease: there are annual end-of-year lease payments of $31,500 which are required over the 3-year life of the lease. All maintenance costs will be paid by the lessor. The lessee will be able to exercise its option to purchase the equipment for $6,000 at the termination of the lease.
Purchase: The equipment which costs $77,000, can be financed entirely with a 12% loan which requires annual end-of-year payments of $32,059 for 3 years. The firm will
11. Calculate the present value of the
12. Calculate the present value of the cash outflow for the purchase alternative.
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