Problem 05.031 Future Worth AnalysisA small strip-mining coal company is trying to decide whether it should purchase or lease a new clamshell. If purchased, the "shell" willcost $137,500 and is expected to have a $42,500 salvage value after 6 years. Alternatively, the company can lease a clamshell for only$13,000 per year, but the lease payment will have to be made at the beginning of each year. If the clamshell is purchased, it will beleased to other strip-mining companies whenever possible, an activity that is expected to yield revenues of $9,000 per year. Ifthe company's MARR is 11% per year, should the clamshell be purchased or leased on the basis of a future worth analysis? Assume theannual M&O cost is the same for both options.The future worth when purchased is $The future worth when leased is $The clamshell should b✓ (Click to select)leasedpurchased

Option 1: Purchase new clamshellThe purchasing cost of clamshell (P)=$137,500Salvage value of clamshell (S)=$42,500Life =6 yearsAnnual expected revenue =$9000 per year.MARR=11%Option 2: Lease a new clamshellLease amount =$13,000 per year The lease payment will have to be made at the beginning of the year.We have to calculate the future worth of both options.Let us calculate the future worth if clamshell is purchasedFW of purchase option=-137500*(F/A,0.011,6)+9000*(F/A,0.11.6)+42500Let us calculate the interest factors(F/P,0.11,6)=(1+0.11)^6=1.870415 FW of purchase option = -137500*1.870415+9000*7.912860+42500 = -$143466.32Let us calculate the future worth if clamshell is leasedFW of lease option = -13000*7.912860*(1+0.11) = -$114,182.57We can see that purchase option is costlier than the lease option.Clamshell should be leasedFinal Answer:- FW of purchase option = -$143466.32FW of lease option = $143466.32Clamshell should be leased