You run a construction company. You need to lease a crane for a two-year project. There are two suppliers which can supply a suitable crane. The first, Acme Cranes, will cost $60,000 immediately and $50,000 in a year. At the end of the rental in two years Acme will give back $11,000 if the crane is in good shape. The second company, Bobco Rentals, will cost $65,000 immediately and $55,000 in a year. At the end of the rental in two years Bobco will give back $22,000 if the crane is in good shape. If money is valued at 11% simple and using today as your comparison date, which company has the lower cost? Assume the crane will be returned in good shape.
You run a construction company. You need to lease a crane for a two-year project. There are two suppliers which can supply a suitable crane. The first, Acme Cranes, will cost $60,000 immediately and $50,000 in a year. At the end of the rental in two years Acme will give back $11,000 if the crane is in good shape. The second company, Bobco Rentals, will cost $65,000 immediately and $55,000 in a year. At the end of the rental in two years Bobco will give back $22,000 if the crane is in good shape. If money is valued at 11% simple and using today as your comparison date, which company has the lower cost? Assume the crane will be returned in good shape.
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 run a construction company. You need to lease a crane for a two-year project.
There are two suppliers which can supply a suitable crane. The first, Acme Cranes,
will cost $60,000 immediately and $50,000 in a year. At the end of the rental in two
years Acme will give back $11,000 if the crane is in good shape. The second
company, Bobco Rentals, will cost $65,000 immediately and $55,000 in a year. At
the end of the rental in two years Bobco will give back $22,000 if the crane is in
good shape.
If money is valued at 11% simple and using today as your comparison date, which company has the
lower cost? Assume the crane will be returned in good shape.
Acme has the lower cost $96,028.99 < $96,516.76
Acme has the lower cost $96,035.66 < $96,516.76
Acme has the lower cost $96,028.66 < $96,516.76
Acme has the lower cost $96,028.66 < $96,516.99](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F8f0192f6-e785-4224-b60b-9a582665be28%2F1fb113c0-9e39-4e0a-98e8-949995f92410%2Faieq83_processed.jpeg&w=3840&q=75)
Transcribed Image Text:You run a construction company. You need to lease a crane for a two-year project.
There are two suppliers which can supply a suitable crane. The first, Acme Cranes,
will cost $60,000 immediately and $50,000 in a year. At the end of the rental in two
years Acme will give back $11,000 if the crane is in good shape. The second
company, Bobco Rentals, will cost $65,000 immediately and $55,000 in a year. At
the end of the rental in two years Bobco will give back $22,000 if the crane is in
good shape.
If money is valued at 11% simple and using today as your comparison date, which company has the
lower cost? Assume the crane will be returned in good shape.
Acme has the lower cost $96,028.99 < $96,516.76
Acme has the lower cost $96,035.66 < $96,516.76
Acme has the lower cost $96,028.66 < $96,516.76
Acme has the lower cost $96,028.66 < $96,516.99
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