A small strip-mining coal company is trying to decide whether it should purchase or lease a new clamshell. If purchased, the "shell cost $167,500 and is expected to have a $37,500 salvage value after 6 years. Alternatively, the company can lease a clamshell for $10,000 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 $15,000 per year. If the company's MARR is 19% per year, should the clamshell be purchased or leased on the basis of a future worth analysis? Assume annual M&O cost is the same for both options. The future worth when purchased is $-292,802 O The future worth when leased is $ -96,820 The clamshell should be leased

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question

6

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 $167,500 and is expected to have a $37,500 salvage value after 6 years. Alternatively, the company can lease a clamshell for only
$10,000 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 $15,000 per year. If
the company's MARR is 19% 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.
The future worth when purchased is $-292,802
The future worth when leased is $-96,820
The clamshell should be leased
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 $167,500 and is expected to have a $37,500 salvage value after 6 years. Alternatively, the company can lease a clamshell for only $10,000 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 $15,000 per year. If the company's MARR is 19% 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. The future worth when purchased is $-292,802 The future worth when leased is $-96,820 The clamshell should be leased
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps with 1 images

Blurred answer
Knowledge Booster
Nash Equilibrium
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education