Question

A diesel 7-72 A diesel generator for electrical power purchased by a remote community for $350,000 and used for 10 years, when its salvage value is $50,000. Alternatively, it can be leased for $42,500 a year. (Remember that lease payments occur at the start of the year.) The community's interest rate is 7%. (a) What is the interest rate for buying versus leasing? Which is the better choice? (b) The community will spend $80,000 less each year for fuel and maintenance, than it currently spends on buying power. Should it obtain the generator? What is the rate of return for the generator using the best financing plan? lauer vou 7-77

Answer 1

Answer! Cliven-Data. A discal generator - $350,000 No. of years loyd's Salvage values = $ .000 And leased Cenedalod = $42.500 lycad Reto othed The Community's interst rate of Ar In net amount - : on gencsatoo for logos is $ 350,000 - $50,000 $ 30,0000 net amount of internch-spend on generator : : $42506 x 7 x16 : $29750 (inteast of logos] Total amount = 42500x10 + 29750 425000 + 29750 $ 454750 1 *. Hence, option is a good choice as if witake generator on we spend a ladge amount of difference around [ 1154750] of Community spend $80,000 less amount on each year foo fuel and maintained then he still chose optional I to spend I buy generator as $80,000) is less than $154950)