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Kiddy Toy Corporation needs to acquire the use of a machine to be used in its manufacturing process. The machine needed is ma

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Answer #1

Solution:

Computation of Present value of Cash outflows for buy and lease option - Kiddy Toy Corporation
Particulars Period Amount PV Factor Present Value
Buying Option:
Cost of Machine 0 $1,65,000.00 1 $1,65,000.00
Annual maintenance and insurance cost 1-10 $10,000.00 5.650223 $56,502.23
Salvage Value 10 -$15,000.00 0.321973 -$4,829.60
Present value of cash outflows - Buying option $2,16,672.63
Leasing Option:
Annual Lease Rent 0-9 $30,000.00 6.328250 $1,89,847.49
Present value of cash outflows - Leasing Option $1,89,847.49

Kiddy should choose "Lease option".

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