Old School is trying to decide whether it should purchase or lease a new high-speed photocopier machine. It will cost the school $14,000 to purchase the copier and $750 each year to maintain the machine over the course of its 6-year useful life. At the end of the sixth year, Old School expects to be able to sell the copier for $1,000. A dealer has offered to lease the school the same copier for a payment of $750 at the beginning of the lease plus lease payments of $3,450 per year for 4 years. Lease payments include all maintenance. The dealer was unable to offer a lease longer than 4 years. Lease payments would be made at the end of each year. If Old School’s discount rate is 8 percent, which alternative should it choose and why?
5-37. Old School is trying to decide whether it should purchase or lease a new high-speed photocopier machine. It will cost the school $14,000 to purchase the copier and $750 each year to maintain the machine over the course of its 6-year useful life. At the end of the sixth year, Old School expects to be able to sell the copier for $1,000. A dealer has offered to lease the school the same copier for a payment of $750 at the beginning of the lease plus lease payments of $3,450 per year for 4 years. Lease payments include all maintenance. The dealer was unable to offer a lease longer than 4 years. Lease payments would be made at the end of each year. If Old School’s discount rate is 8 percent, which alternative should it choose and why?
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