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A lathe costs $56,000 and is expected to result in net cash inflows of $20,000 at the end of each year for three years and then have a market value of $10,000 at the end of the third year. The equipment could be leased for $22,000 a year, with the first payment due immediately. Solve, a. If the organization does not pay income taxes and its MARR is 10%, show whether the organization should lease or purchase the equipment. b. If the lathe is thought to be worth only, say, $18,000 per year to the organization, what is the better economic decision?

A lathe costs $56,000 and is expected to result in net cash inflows of $20,000 at the end of each year for three years and then have a market value of $10,000 at the end of the third year. The equipment could be leased for $22,000 a year, with the first payment due immediately. Solve, a. If the organization does not pay income taxes and its MARR is 10%, show whether the organization should lease or purchase the equipment. b. If the lathe is thought to be worth only, say, $18,000 per year to the organization, what is the better economic decision?

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 2P
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A lathe costs $56,000 and is expected to result in net cash inflows of $20,000 at the end of each year for three years and then have a market value of $10,000 at the end of the third year. The equipment could be leased for $22,000 a year, with the first payment due immediately. Solve, a. If the organization does not pay income taxes and its MARR is 10%, show whether the organization should lease or purchase the equipment. b. If the lathe is thought to be worth only, say, $18,000 per year to the organization, what is the better economic decision?

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