Calculation of net present value of leasing alternative | |||||||
Year | Cash flow | Discount Factor @ 6.5% | Present Value | ||||
0 | $0.00 | 1.00000 | $0.00 | ||||
1 | -$9,500.00 | 0.93897 | -$8,920.19 | ||||
2 | -$9,500.00 | 0.88166 | -$8,375.76 | ||||
3 | -$9,500.00 | 0.82785 | -$7,864.57 | ||||
4 | -$9,500.00 | 0.77732 | -$7,384.57 | ||||
5 | -$9,500.00 | 0.72988 | -$6,933.87 | ||||
Net present value of leasing alternative | -$39,479 | ||||||
Calculation of net present value of buying alternative | |||||||
Year | Cash flow | Discount Factor @ 6.5% | Present Value | ||||
0 | -$40,800.00 | 1.00000 | -$40,800.00 | ||||
1 | -$2,000.00 | 0.93897 | -$1,877.93 | ||||
2 | -$2,000.00 | 0.88166 | -$1,763.32 | ||||
3 | -$2,000.00 | 0.82785 | -$1,655.70 | ||||
4 | -$2,000.00 | 0.77732 | -$1,554.65 | ||||
5 | -$2,000.00 | 0.72988 | -$1,459.76 | ||||
Net present value of leasing alternative | -$49,111 | ||||||
Net benefit from leasing alternative = NPV of leasing alternative - NPV of buying laternative | |||||||
Net benefit from leasing alternative = -$39,479 - (-$49,111) = | $9,632 | ||||||
You should lease the equipment as there is a net benefit of $9,632 if you select this alternative. |
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