You are planning on leasing a drying oven for your production line. The oven lease terms involve an initial payment of $1000 when the oven is delivered, an annual payment of $2000 for seven years, and a final recovery payment of $1000 when the leasing company takes the oven back at the end of the lease. Your corporate cost of money is 4% and the leasing company is responsible for all maintenance on the oven. The leasing company has offered to finance the entire leasing deal at 2% annual interest rate. How does this change the value of the leasing cashflow from the corporate-financed 4% option?
You are planning on leasing a drying oven for your production line. The oven lease terms involve an initial payment of $1000 when the oven is delivered, an annual payment of $2000 for seven years, and a final recovery payment of $1000 when the leasing company takes the oven back at the end of the lease. Your corporate cost of money is 4% and the leasing company is responsible for all maintenance on the oven. The leasing company has offered to finance the entire leasing deal at 2% annual interest rate. How does this change the value of the leasing cashflow from the corporate-financed 4% option?
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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Transcribed Image Text:You are planning on leasing a drying oven
for your production line. The oven lease
terms involve an initial payment of $1000
when the oven is delivered, an annual
payment of $2000 for seven years, and a
final recovery payment of $1000 when the
leasing company takes the oven back at the
end of the lease. Your corporate cost of
money is 4% and the leasing company is
responsible for all maintenance on the
oven. The leasing company has offered to
finance the entire leasing deal at 2% annual
interest rate. How does this change the
value of the leasing cashflow from the
corporate-financed 4% option?
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