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Kiddy Toy Corporation needs to acquire the use of a machine to be used in manufacturing process. The machine needed is manufactured by Lollie Corp. T machine can be used for 10 years and then sold for $10,000 at the end of its use life. Lollie has presented Kiddy with the following options (FV of $1, PV of $1, FVA $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tabl provided.) 1. Buy machine. The machine could be purchased for $160,000 in cash. which proximate $5.00 jould

Kiddy Toy Corporation needs to acquire the use of a machine to be used in manufacturing process. The machine needed is manufactured by Lollie Corp. T machine can be used for 10 years and then sold for $10,000 at the end of its use life. Lollie has presented Kiddy with the following options (FV of $1, PV of $1, FVA $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tabl provided.) 1. Buy machine. The machine could be purchased for $160,000 in cash. which proximate $5.00 jould

Essentials Of Investments
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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Kiddy Toy Corporation needs to acquire the use of a machine to be used in its manufacturing process. The machine needed is manufactured by Lollie Corp. The machine can be used for 10 years and then sold for $10,000 at the end of its useful life. Lollie has presented Kiddy with the following options (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) 1. Buy machine. The machine could be purchased for $160,000 in cash. All maintenance and insurance costs, which approximate $5,000 per year, would be paid by Kiddy. 2.Lease machine. The machine could be leased for a 10-year period for an annual lease payment of $25,000 with the first payment due immediately. All maintenance and insurance costs will be paid for by the Lollie Corp. and the machine will revert back to Lollie at the end of the 10-year period. Required: Assuming that a 12% interest rate properly reflects the time value of money in this situation and that all maintenance and insurance costs are paid at the end of each year, find the present value for the following options. Ignore income tax considerations. (Negative amounts should be indicated by a minus sign.) Buy option Lease option PV
Transcribed Image Text:Kiddy Toy Corporation needs to acquire the use of a machine to be used in its manufacturing process. The machine needed is manufactured by Lollie Corp. The machine can be used for 10 years and then sold for $10,000 at the end of its useful life. Lollie has presented Kiddy with the following options (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) 1. Buy machine. The machine could be purchased for $160,000 in cash. All maintenance and insurance costs, which approximate $5,000 per year, would be paid by Kiddy. 2.Lease machine. The machine could be leased for a 10-year period for an annual lease payment of $25,000 with the first payment due immediately. All maintenance and insurance costs will be paid for by the Lollie Corp. and the machine will revert back to Lollie at the end of the 10-year period. Required: Assuming that a 12% interest rate properly reflects the time value of money in this situation and that all maintenance and insurance costs are paid at the end of each year, find the present value for the following options. Ignore income tax considerations. (Negative amounts should be indicated by a minus sign.) Buy option Lease option PV
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