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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

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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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?
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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