FINANCIAL MANAGEMENT
FINANCIAL MANAGEMENT
16th Edition
ISBN: 9781337902601
Author: Brigham
Publisher: CENGAGE L
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Chapter 19, Problem 4Q
Summary Introduction

To determine: The effect of cancellation clause in lease on lessee’s or lessor’s analysis.

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The Short-Line Railroad is considering a $140,000 investment in either of two companies. The cash flows are as follows:  Year                     Electric Co.                  Water Works 1..................          $85,000                         $30,0002..................           25,000                            25,0003..................           30,000                            85,0004–10 ............          10,000                            10,000a. Using the payback method, what will the decision be?  b. Using the Net Present Value method, which is the better project? The discount rate is 10%.
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