7-72 A diesel generator for electrical power can be pur- chased by a remote community for $480,000 and A used for 10 years, when its salvage value is $50,000. Alternatively, it can be leased for $70,000 a year. (Remember that lease payments occur at the start of year.) The community’s interest rate is 8%. the
7-72 A diesel generator for electrical power can be pur- chased by a remote community for $480,000 and A used for 10 years, when its salvage value is $50,000. Alternatively, it can be leased for $70,000 a year. (Remember that lease payments occur at the start of year.) The community’s interest rate is 8%. the
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter19: Lease Financing
Section: Chapter Questions
Problem 6P: Big Sky Mining Company must install 1.5 million of new machinery in its Nevada mine. It can obtain a...
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![7-72 A diesel generator for electrical power can be pur-
chased by a remote community for $480,000 and
used for 10 years, when its salvage value is $50,000.
Alternatively, it can be leased for $70,000 a year.
(Remember that lease payments occur at the start of
the year.) The community's interest rate is 8%.
(a) What is the interest rate for buying versus
leasing? Which is the better choice?
(b) The community will spend $80,000 less each
year for fuel and maintenance, than it currently
spends on buying power. Should it obtain the
generator? What is the rate of return for the
generator using the best financing plan?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F09b3997c-2096-4573-b74b-055c69181c0d%2F9ff177a1-5e38-4c18-9ef2-fd00b53cebfe%2Fcvr322l_processed.jpeg&w=3840&q=75)
Transcribed Image Text:7-72 A diesel generator for electrical power can be pur-
chased by a remote community for $480,000 and
used for 10 years, when its salvage value is $50,000.
Alternatively, it can be leased for $70,000 a year.
(Remember that lease payments occur at the start of
the year.) The community's interest rate is 8%.
(a) What is the interest rate for buying versus
leasing? Which is the better choice?
(b) The community will spend $80,000 less each
year for fuel and maintenance, than it currently
spends on buying power. Should it obtain the
generator? What is the rate of return for the
generator using the best financing plan?
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