A manufacturer can lease a machine for 7 years at $3,000 per quarter, payableat the beginning of each quarter.Alternatively, they can purchase the machine for $78,000 and sell it for $8,700in 7 years.The cost of capital is 6.2% compounded annually.a. What is the present value of the cost:(enter a positive value accurate to the nearest dollar)i) of the lease option? $ii) of the purchase option? $b. Should the manufacturer purchase or lease?O Purchase since Purchase PV is higher than Lease PVO Lease since Lease PV is higher than Purchase PVO Lease since Purchase PV is lower than Lease PVO Purchase since Lease PV is lower than Purchase PVLease since Lease PV is lower than Purchase PVPurchase since Lease PV is higher than Purchase PVSubmit Question

A lease is a contract in which one party (the proprietor of an asset) agrees to give the other party…

Answered: A manufacturer can lease a machine for…

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

Section: Chapter Questions

Problem 1PS

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Give typing answer with explanation and conclusion Assume you want to borrow $300,000 and have been presented with two options. The first option is a fully amortizing loan with an interest rate of 3% and $4000 of origination fees and points. The second option is an interest only loan with an interest rate of 4% and $5000 of origination fees and points. Both loans are for 30 years and have monthly payments. Further assume that if the borrower chooses the interest only loan, any money saved on the monthly payment can be invested with a projected return of 7%. Also assume that the proceeds from the investment will first be used to pay off any remaining balance on the loan. How much money will the investor have left at the end of 30 years after repaying the loan? Group of answer choices None, the investor will owe $12,373.42 $323,060.72 $22,063.08 $30,750.78
Your firm is considering a number of mutually exclusive choices for a property that you recently acquired. The following are the projected cash flows for one of the projects over its seven-year life. Cash Flows 0 1 2 3 4 5 6 7 (600,000) 100,000 120,000 140,000 160,000 180,000 200,000 220,000 If the appropriate discount rate is 12%, what is the annualized Net Present Value for this option? (Do not round intermediate calculations and enter your answer in dollars with-no decimal places, e.g., 24316.)
A company has offered you two different payment plans for purchasing a product, • Option A. 15% down payment (of the total price) and 10 annual payments of $1,200.• Option B. No down payment and 12 annual payments of $ 1,500.Treat the down payment as occurring at Year 0. Assume an interest rate of 8% per year. a. What is the down payment of Option A?b. What is the price paid for the product under Option A?c. What is the price paid for the product under Option B?d. Which payment option should be selected, A or B?e. Briefly explain why someone might choose the option that has the larger sale price.
You have been offered a contract from Comp Co. You will receive $120,000 up front from Comp Co. In exchange, you will provide $50,000 in services each year for 3 years. Your cost of capital is 10%. Find the NPV and IRR of the deal. Should you accept the contract? Explain.
Compare the cost of the following lesing agreement with the finance charge on a loan for the same time period. The price of the car is $14,000, and its projected residual value at the end of four years is $3,000. Monthly payment $250 Capital cost reduction $1,000 Disposition charge $200 Other things being equal, one would want to finance this car rather than take this lease if the finance cost were less than Select one: a. $2,200 b. $2,000 c. $1,550 d. $1,450
Assuming the leasehold yield is 2% above the freehold yield, calculate the Years Purchase (YP) dual rate for 10 years if the accumulative rate is 3% and that a comparable freehold property let at full market rent of $40,000 has just been sold for $500,000. Hint: Analyse the market yield from the comparable first and then use it to calculate the required YP. 4.3872 7.3625 6.1250 5.3410
4
1. Your client has been offered the opportunity to invest in a project which will pay $1,000 per month at the end of months 1 to 10 and $2,000 per month at the end of months 21 to 30. The interest rate over the period of the investment is a nominal rate of 8% p.a. If your client can buy the investment today for $25,000 would you recommend that this is a good investment? Why or why not?
Hiren Add explanation
3) You are purchasing a car and have the option to pay $25,000 in cash (upfront) OR assume a lease with end of the month payments of $399 for five years. By purchasing, you will receive an estimated residual value (or scrap value) by selling the car for $2,500 at the end of the 5 years. If interest is 2.7% compounded annually, which financing option would you prefer? (16.1 DCF)
The leasing company has offered to finance the entire leasing deal at 2% annual interest rate. How does this change the value of the leasing cashflow from the corporate-financed 4% option?

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