A Filipino contractor in the USA plans to purchase a new office building costing P1,000,000. He agrees to pay P150,000 annually for 20 years. At the end of this time, he estimates that he can resell the building for at least P600,000. Instead of buying the building he can lease it for P140,000 a year. All payments are to. be made at the beginning of each year and the rate of interest is 10%. Draw the cashflow diagram for both situations. a) What is the present worth of the purchasing price? b) What is the present worth of the leasing price? c) Should the contractor purchase or lease the building?

A Filipino contractor in the USA plans to purchase a new office building costing P1,000,000. He agrees to pay P150,000 annually for 20 years. At the end of this time, he estimates that he can resell the building for at least P600,000. Instead of buying the building he can lease it for P140,000 a year. All payments are to. be made at the beginning of each year and the rate of interest is 10%. Draw the cashflow diagram for both situations. a) What is the present worth of the purchasing price? b) What is the present worth of the leasing price? c) Should the contractor purchase or lease the building?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 14P

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