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
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
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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What is the future worth when 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
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