Question: A firm can lease office furniture for 5 years for $20,000 per year, or it can purchase the furniture for $80,000 outright. Which is a better choice if the firm can invest its money at 10% an...
Question: A firm can lease office furniture for 5 years for $20,000 per year, or it can purchase the furniture for $80,000 outright. Which is a better choice if the firm can invest its money at 10% annual interest rate? (Assume the furniture will have no remaining value at the end of the 5 years.)
Options:
A: The company would need $62,092 to lease the furniture; they should lease.
B: The company would need $71,632 to lease the furniture; they should lease.
C: The company would need $75,816 to lease the furniture; they should lease.
D: The company would need $100,000 to lease the furniture; they should buy.
Homework Answers
PV of lease = PV of annuity = Annuity*(1-1/(1+rate)^number of terms)/rate
= 20000*(1-1/1.10^5)/0.10
= $ 75815.74
This amount is lower than the outright purchase amount.
Hence option c holds true.
Add Answer to:
Question: A firm can lease office furniture for 5 years for $20,000 per year, or it can purchase the furniture for $80,000 outright. Which is a better choice if the firm can invest its money at 10% an...
Question 4 A firm can lease a truck for 4 years at a cost of $30,000...
Question 4 A firm can lease a truck for 4 years at a cost of $30,000 annually. It can instead buy a truck at a cost of $80,000, with annual maintenance expenses of $10,000. The truck will be sold at the end of 4 years for $20,000. Which is the better option if the discount rate is 10%? (Please solve with EAA)
A firm can lease a truck for 4 years at a cost of $30,000 annually. It...
A firm can lease a truck for 4 years at a cost of $30,000 annually. It can instead buy a truck at a cost of $80,000, with annual maintenance expenses of $10,000. The truck will be sold at the end of 4 years for $20,000. a. What is the equivalent annual cost of buying and maintaining the truck if the discount rate is 10%? b. Which is the better option: leasing or buying?
5. The lease versus purchase analysis - Part 2 Which Is Better: To Lease or To...
5. The lease versus purchase analysis - Part 2 Which Is Better: To Lease or To Buy? A car buyer has two financing alternatives: to lease or to purchase. It is important to evaluate all the options and analyze the consequences of lease versus purchase decision. The understanding of a comparative worksheet that analyzes the automobile lease versus purchase decision will help in making an informed choice. How should a lease-versus-purchase analysis be conducted? How can this worksheet be applied...
Question 9 Task 28 v5 Your firm needs to invest in a new delivery truck. The...
Question 9 Task 28 v5 Your firm needs to invest in a new delivery truck. The life expectancy of the delivery truck is five years. You can purchase a new delivery truck for an upfront cost of $200,000, or you can lease a truck from the manufacturer for five years for a monthly lease payment of $4,100 (paid at the beginning of each month). Your firm can borrow at 8% APR with quarterly compounding. a. Calculate the effective annual rate...
Practice Question 14 A firm can either purchase machine A or B for its project. Machine...
Practice Question 14 A firm can either purchase machine A or B for its project. Machine A brings NPV of $20,000 with estimated life of 4 years. Machine B brings NPV of $25,000 with estimated life of 5 years. Discount rate for the project is 15%. Which machine should the firm buy? O a) Either A or B because both have equivalent annual NPV of $5,000 o ba O c) B O d) Neither of them
On January 1, 2019, ABC Company leased office equipment from ZZ, Inc. The lease terms require...
On January 1, 2019, ABC Company leased office equipment from ZZ, Inc. The lease terms require annual payments of $20,000 for 20 years with the first payment being due on December 31, 2019. The interest rate on the lease is 5%, and ABC will use the double-declining balance method to record the amortization of the leased asset. Assume the equipment had a 25 year remaining useful life at January 1, 2019 and the lease contract requires the equipment to be...
You can purchase an annuity that pays $1000 per year for 5 years. The first payment...
You can purchase an annuity that pays $1000 per year for 5 years. The first payment will be received exactly one year from today. If the interest rate is 8%, compounded quarterly, what is the most you would be willing to pay for the annuity (rounded to the next $)? Question 11 options: 1) $4,088 2) $3,791 3) $3,967 4) $4,713 5) $6,105 A quarterly compounded investment of $10,000 is expected to grow to $20,000 in 7 years. What is...
On January 1, 2019, ABC Company leased office equipment from ZZ, Inc. The lease terms require...
On January 1, 2019, ABC Company leased office equipment from ZZ, Inc. The lease terms require annual payments of $20,000 for 20 years with the first payment being due on December 31, 2019. The interest rate on the lease is 5%, and ABC will use the double-declining balance method to record the amortization of the leased asset. Assume the equipment had a 25 year remaining useful life at January 1, 2019 and the lease contract requires the equipment to be...
P6-10 (Analysis of Lease vs. Purchase) Dunn Inc. owns and operates a number of hardware stores...
P6-10 (Analysis of Lease vs. Purchase) Dunn Inc. owns and
operates a number of hardware stores in the
New England region. Recently, the company has decided to locate
another store in a rapidly growing area of
Maryland. The company is trying to decide whether to purchase or
lease the building and related facilities.
Purchase: The company can purchase the site, construct the
building, and purchase all store fi xtures.
The cost would be $1,850,000. An immediate down payment of $400,000...
5. You have two opportunities to invest $5,000 for 10 years. The first provides a yield...
5. You have two opportunities to invest $5,000 for 10 years. The first provides a yield of 8% annually, compounded quarterly. The second provides a yield of 8.5% annually, compounded annually. Which of these investments provides the highest returns? By how much? 6. Which would you prefer -- $10,000 now, $20,000 10 years from now, or $30,000 20 years from now, assuming a. a 6% annual interest rate? b. an 8% annual interest rate? c. a 10% annual interest rate?...
5. The lease versus purchase analysis - Part 2 Which Is Better: To Lease or To Buy? A car buyer has two financing alternatives: to lease or to purchase. It is important to evaluate all the options and analyze the consequences of lease versus purchase decision. The understanding of a comparative worksheet that analyzes the automobile lease versus purchase decision will help in making an informed choice. How should a lease-versus-purchase analysis be conducted? How can this worksheet be applied...
Practice Question 14 A firm can either purchase machine A or B for its project. Machine A brings NPV of $20,000 with estimated life of 4 years. Machine B brings NPV of $25,000 with estimated life of 5 years. Discount rate for the project is 15%. Which machine should the firm buy? O a) Either A or B because both have equivalent annual NPV of $5,000 o ba O c) B O d) Neither of them
P6-10 (Analysis of Lease vs. Purchase) Dunn Inc. owns and
operates a number of hardware stores in the
New England region. Recently, the company has decided to locate
another store in a rapidly growing area of
Maryland. The company is trying to decide whether to purchase or
lease the building and related facilities.
Purchase: The company can purchase the site, construct the
building, and purchase all store fi xtures.
The cost would be $1,850,000. An immediate down payment of $400,000...
5. You have two opportunities to invest $5,000 for 10 years. The first provides a yield of 8% annually, compounded quarterly. The second provides a yield of 8.5% annually, compounded annually. Which of these investments provides the highest returns? By how much? 6. Which would you prefer -- $10,000 now, $20,000 10 years from now, or $30,000 20 years from now, assuming a. a 6% annual interest rate? b. an 8% annual interest rate? c. a 10% annual interest rate?...
Most questions answered within 3 hours.
-
Write a C++ program that will convert distance measurements from
miles to kilometers. Specifically, the program...
asked 1 minute ago -
Given the following stresses (in MP a); in each case:
(a) Find the principal stresses σ1;...
asked 5 minutes ago -
You are one of the first engineers hired into the
manufacturing engineering department at a brand...
asked 10 minutes ago -
Suppose car models A, B, and C are popular among drivers.
Suppose 12% of the drivers...
asked 27 minutes ago -
write a program that finds the number of zeros in an 8-bit data
item using assembly...
asked 28 minutes ago -
Which statement is always true: The total energy of a closed
system...
A) is always equally...
asked 42 minutes ago -
find the critical value associated with a right sided hypothesis of
the mean using a sample...
asked 2 hours ago -
Which of the following statements is true with respect to a
simple linear regression model?
a....
asked 3 hours ago -
The energy required to remove an electron from a surface of a
solid element is called...
asked 4 hours ago -
How would you train your employees to avoid risks of using
mobile devices?
asked 5 hours ago -
Assume Kw = 1.01 ✕ 10−14
For pure water, we can calculate [H3O+ ] = [OH...
asked 6 hours ago -
Suppose that on a temperature scale X, water boils at 203.0°X
and freezes at -105.7°X. What...
asked 6 hours ago