Kiddy Toy Corporation needs to acquire the use of a machine to be used in its manufacturing process. The machine needed ismanufactured by Lollie Corporation. The machine can be used for 11 years and then sold for $16,000 at the end of its useful life. Lolliehas presented Kiddy with the following options:1. Buy machine. The machine could be purchased for $166,000 in cash. All maintenance costs, which approximate $11,000 peryear, would be paid by Kiddy.2. Lease machine. The machine could be leased for a 11-year period for an annual lease payment of $31,000 with the first paymentdue immediately. All maintenance costs will be paid for by the Lollie Corporation and the machine will revert back to Lollie at theend of the 11-year period.Required:Assuming that a 11% interest rate properly reflects the time value of money in this situation and that all maintenance costs are paid atthe end of each year, determine which option Kiddy should choose. Ignore income tax considerations.Note: Round your final answers to nearest whole dollar amount. Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVAof $1, PVA of $1, FVAD of $1 and PVAD of $1)Buy optionLease optionKiddy should choosePV

While deciding whether to buy or lease a particular equipment , the investor is required to compute…

Answered: Kiddy Toy Corporation needs to acquire…

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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