Assume that a company is choosing between two alternatives-lease a piece of equipment for five years or buy a piece of equipment and sell it im five years. The costs associated with the two alternatives are summarized as follows: Purchase cost of equipment Annual operating costs Immediate deposit Annual lease payments Salvage value (5 years from now) Lease $ 25,000 $ 18,000 Buy $ 60,000 $ 6,000 $ 8,000 Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using the tables provided. ………………………. If the company chooses the lease option, it will have to pay an immediate deposit of $25,000 to cover any future damages to the equipment. The deposit is refundable at the end of the lease term. The annual lease payments are made at the end of each year. Based on a net present value analysis with a discount rate of 12%, what is the financial advantage (disadvantage) of buying the equipment rather than leasing it?
Assume that a company is choosing between two alternatives-lease a piece of equipment for five years or buy a piece of equipment and sell it im five years. The costs associated with the two alternatives are summarized as follows: Purchase cost of equipment Annual operating costs Immediate deposit Annual lease payments Salvage value (5 years from now) Lease $ 25,000 $ 18,000 Buy $ 60,000 $ 6,000 $ 8,000 Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using the tables provided. ………………………. If the company chooses the lease option, it will have to pay an immediate deposit of $25,000 to cover any future damages to the equipment. The deposit is refundable at the end of the lease term. The annual lease payments are made at the end of each year. Based on a net present value analysis with a discount rate of 12%, what is the financial advantage (disadvantage) of buying the equipment rather than leasing it?
Chapter19: Lease And Intermediate-term Financing
Section: Chapter Questions
Problem 9P
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Transcribed Image Text:Assume that a company is choosing between two alternatives-lease a piece of equipment for five years or buy a piece of equipment and sell it in
five years. The costs associated with the two alternatives are summarized as follows:
Lease
Buy
$ 60,000
$ 6,000
Purchase cost of equipment
Annual operating costs
Immediate deposit
Annual lease payments
Salvage value (5 years from now)
$ 8,000
Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using the tables provided.
If the company chooses the lease option, it will have to pay an immediate deposit of $25,000 to cover any future damages to the equipment. The
deposit is refundable at the end of the lease term. The annual lease payments are made at the end of each year. Based on a net present value
analysis with a discount rate of 12%, what is the financial advantage (disadvantage) of buying the equipment rather than leasing it?
$ 25,000
$ 18,000
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