A small strip-mining coal company is trying to decide whether it should purchase or lease a new clamshell. If purchased, the "shell" will cost $177,500 and is expected to have a $50,000 salvage value after 6 years. Alternatively, the company can lease a clamshell for only $17,000 per year, but the lease payment will have to be made at the beginning of each year. If the clamshell is purchased, it will be leased to other strip-mining companies whenever possible, an activity that is expected to yield revenues of $10,000 per year. If the company's MARR is 14% per year, should the clamshell be purchased or leased on the basis of a future worth analysis? Assume the annual M&O cost is the same for both options. Calculate the future worth for the purchased alternative and leased alternative Future worth when purchased: $-172,252 Future worth when leased: $-222,830 The clamshell should be purchased Future worth when purchased: $-174,878 Future worth when leased: $-171,136 (A) (B) The clamshell should be leased Future worth when purchased: $-220,152 Future worth when leased: $-230,454 The clamshell should be purchased Future worth when purchased: $-254,252 Future worth when leased: $-165,418 The clamshell should be leased
A small strip-mining coal company is trying to decide whether it should purchase or lease a new clamshell. If purchased, the "shell" will cost $177,500 and is expected to have a $50,000 salvage value after 6 years. Alternatively, the company can lease a clamshell for only $17,000 per year, but the lease payment will have to be made at the beginning of each year. If the clamshell is purchased, it will be leased to other strip-mining companies whenever possible, an activity that is expected to yield revenues of $10,000 per year. If the company's MARR is 14% per year, should the clamshell be purchased or leased on the basis of a future worth analysis? Assume the annual M&O cost is the same for both options. Calculate the future worth for the purchased alternative and leased alternative Future worth when purchased: $-172,252 Future worth when leased: $-222,830 The clamshell should be purchased Future worth when purchased: $-174,878 Future worth when leased: $-171,136 (A) (B) The clamshell should be leased Future worth when purchased: $-220,152 Future worth when leased: $-230,454 The clamshell should be purchased Future worth when purchased: $-254,252 Future worth when leased: $-165,418 The clamshell should be leased
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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INSTRUCTIONS: Help me answer the given question and choose the correct answer. 3
Transcribed Image Text:A small strip-mining coal company is trying to decide whether it should purchase or lease a new clamshell. If purchased, the "shell"
will cost $177,500 and is expected to have a $50,000 salvage value after 6 years. Alternatively, the company can lease a clamshell
for only $17,000 per year, but the lease payment will have to be made at the beginning of each year. If the clamshell is purchased, it
will be leased to other strip-mining companies whenever possible, an activity that is expected to yield revenues of $10,000 per year.
If the company's MARR is 14% per year, should the clamshell be purchased or leased on the basis of a future worth analysis?
Assume the annual M&O cost is the same for both options.
Calculate the future worth for the purchased alternative and leased alternative
(A)
(В
B
Future worth when purchased: $-172,252
Future worth when leased: $-222,830
The clamshell should be purchased
Future worth when purchased: $-174,878
Future worth when leased: $-171,136
The clamshell should be leased
Future worth when purchased: $-220,152
Future worth when leased: $-230,454
The clamshell should be purchased
Future worth when purchased: $-254,252
Future worth when leased: $-165,418
The clamshell should be leased
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