Determine, on a present worth basis, whether it is more economical to lease or purchase a machine. The first cost of purchasing the machine is $100000, an expected life of 6 years, annual operating and maintenance cost of $7000 and a salvage value of $13000. The machine can be leased for $25000 annually. Operating expenses are expected to be $800. Use an interest rate of 12%
R = 12%
n = 6 years
When machine is purchased:
Present value of the cost = first cost + present value of the O&M cost – present value of the salvage value
Present value of the cost = 100000 + 7000*(1-1/1.12^6)/.12 – 13000/1.12^6
Present value of the cost = $122193.6 (It is negative as it is cost)
When machine is taken on lease:
Present value of the cost = 25000*(1-1/1.12^6)/.12 + 800*(1-1/1.12^6)/.12
Present value of the cost = $106074.3 (It is negative as it is cost)
Since present value of the cost during leasing is most economical and lower than the present value of the cost when it is purchased, then leasing is the best option on present worth basis.
Determine, on a present worth basis, whether it is more economical to lease or purchase a...
A small strip-mining coal company is trying to decide whether it should purchase or lease a new clamshell. If purchased, the "shell" will cost $177,500 and is expected to have a $50,000 salvage value after 6 years. Alternatively, the company can lease a clamshell for only $17,000 per year, but the lease payment will have to be made at the beginning of each year. If the clamshell is purchased, it will be leased to other strip-mining companies whenever possible, an...
Question 15 Master Manufacturing is considering the purchase of a machine or $500,000. Aernalively, the machine could be leased on a five-year contract for $125,000 par year with lease maintenance costs wil be $25,000 per year and the salvage value of the machine after flive years is expected to be $70,000 beginning of each yoar. It the compary purchases the machine, Answer the below questions Using an interest rate of 10% pir year Match the dosest corectansen Int beon gostos...
Purchase $320.000 Lease Alternative Initial Cost Lease Annual Operating costs Salvage Value Life, years $40 000 $7.000 $8500 $ 80.000 5 5 c. PW of Purchase Option a. PW of the lease Option 0. Salvage value of purchase Option Decision to Purchase or Lease 567.942 9-193,337 C5-309 5515 5-49,072 5-319.327 * Lease You are given the following is about two machine with 10% Com First costs 30 000 Antal maintenance con 111000 Persodi me cost every years Salvare values 6000...
Problem 05.031 Future Worth Analysis A small strip-mining coal company is trying to decide whether it should purchase or lease a new clamshell. If purchased, the "shell" will cost $145,000 and is expected to have a $37,500 salvage value after 6 years. Alternatively, the company can lease a clamshell for only $20,000 per year, but the lease payment will have to be made at the beginning of each year. If the clamshell is purchased, it will be leased to other...
Question 1 A. Using Ms Excel, find out which alternative should be selected on the basis of the Present Worth method, if the rate of interest is 8% per year. • Alternative 1: Initial purchase price = $2500000, Annual operating cost $45000 at the end of 1st year and increasing by $3000 in the subsequent years till the end of useful life, Annual income = $120000, Salvage value = $550000, Useful life = 3 years. Alternative 2: Initial purchase price...
Use Present Worth Analysis to determine whether Alternative A or B should be chosen. Items are identically replaced at the end of their useful lives. Assume an interest rate of 3% per year, compounded annually. Alternative A 340 60 Alternative B 870 182 Initial Cost Annual Benefit Salvage Value Useful Life (yrs) 78 106 Alternative A, because it costs $65.43 less than Alternative B, in terms of present worth Alternative B, because it costs $65.43 more than Alternative A, in...
Master Manufacturing is considering the purchase of a machine for $500,000. Alternatively, the machine could be leased on a five-year contract for $125,000 per year with lease payments made at the beginning of each year. If the company purchases the machine, maintenance costs will be $25,000 per year and the salvage value of the machine after five years is expected to be $70,000. Answer the below questions Using an interest rate of 10% per year. Match the closest correct answers...
Lease versus purchase JLB Corporation is attempting to determine whether to lease or purchase research equipment. The firm is in the 40% tax bracket, and its after-tax cost of debt is currently 8%. The terms of the lease and of the purchase are as follows: Lease Annual end-of-year lease payments of $25,200 are required over the 3-year life of the lease. All maintenance costs will be paid by the lessor; insurance and other costs will be borne by the lessee....
Futuro Co. is considering purchasing a computer system to assist in circuit board manufacturing. The system costs $100,000. It has an expected life of 7 years, at which time its salvage value will be $9,500. Operating and maintenance expenses are estimated to be $2,000 per year. If the computer system is purchased, annual manufacturing costs will be reduced by $4,000 per year. Futuro co. must borrow half of the purchase price, but they cannot start repaying the loan for 3...
Question 15 10 points Save Answer Master Manufacturing is considering the purchase of a machine for $500,000. Alternatively, the machine could be leased on a five-year contract for $125,000 per year with lease payments made at the beginning of each year. I the company purchases the machine, maintenance costs will be $25,000 per year and the salvage value of the machine after five years is expected to be $70,000. Answer the below questions using an interest rate of 10% per...