We need to compare the PV of the two streams. Pls see table below.
It's better to lease.
Buy/(1.15^Time) | Lease/(1.15^Time) | |||
Time | Buy | PV(Buy) | Lease | PV(Lease) |
0 | -70,000 | -70,000 | 16,000 | 16,000 |
1 | - | 16,000 | 13,913 | |
2 | - | 16,000 | 12,098 | |
3 | - | 16,000 | 10,520 | |
4 | - | 16,000 | 9,148 | |
5 | 15,000 | 7,458 | ||
Total PV | -62,542 | 61,680 |
A contractor is considering whether to buy or lease a new equipment for their new project....
A contractor is considering whether to buy or lease a new equipment for their new project. Buying the equipment will cost $70,000 with a salvage value of $15,000 after the machine useful life of 5 years. On the other hand, the sarne equipment can be leased for $16,000 per year (payable at the beginning of the year). Assuming that the MARR is 15% and on the basis of an internalrate of return analysis, which alternative should be selected? 12pt Paragraph...
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