You need a particular piece of equipment for your production process. An equipment-leasing company has offered to lease the equipment to you for $10,500 per year if you sign a guaranteed-year5-year lease (the lease is paid at the end of each year). The company would also maintain the equipment for you as part of the lease. Alternatively, you could buy and maintain the equipment yourself. The cash flows from doing so are listed here: (the equipment has an economic life of 5 years). If your discount rate is 6.9%, what should you do?
You need a particular piece of equipment for your production process. An equipment-leasing company has offered to lease the equipment to you for $10,500 per year if you sign a guaranteed-year5-year lease (the lease is paid at the end of each year). The company would also maintain the equipment for you as part of the lease. Alternatively, you could buy and maintain the equipment yourself. The cash flows from doing so are listed here: (the equipment has an economic life of 5 years). If your discount rate is 6.9%, what should you do?
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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You need a particular piece of equipment for your production process. An equipment-leasing company has offered to lease the equipment to you for $10,500 per year if you sign a guaranteed-year5-year lease (the lease is paid at the end of each year). The company would also maintain the equipment for you as part of the lease. Alternatively, you could buy and maintain the equipment yourself. The cash flows from doing so are listed here:
(the equipment has an economic life of 5 years). If your discount rate is 6.9%, what should you do?
Transcribed Image Text:You need a particular piece of equipment for your production process. An equipment-leasing company has offered to lease the equipment to you for $10,500 per
year if you sign a guàranteed 5-year lease (the lease is paid at the end of each year). The company would also maintain the equipment for you as part of the lease.
Alternatively, you could buy and maintain the equipment yourself. The cash flows from doing so are listed here: E (the equipment has an economic life of 5 years).
If your discount rate is 6.9%, what should you do?
The net present va
Data table
(Click on the following icon in order to copy its contents into a spreadsheet.)
Year 0
Year 1
Year 2
Year 4
H$2,100
Year 3
Year 5
-$39,800
$2,100
- $2,100
– $2,100
- $2,100
Print
Done
Transcribed Image Text:Present Value of Lease option is
Present Value of Buy and Maintain option is
It is better to
t since the present value of lease costs are less than buy and maintain costs
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