Buffalo Inc. is considering whether to lease or purchase a piece of equipment. The total cost to lease the equipment will be $137,000 over its estimated life, while the total cost to buy the equipment will be $83,000 over its estimated life. At Buffalo’s required rate of return (hurdle rate), the net present value of the cost of leasing the equipment is $78,300 and the net present value of the cost of buying the equipment is $72,000. Based on financial factors, Buffalo should: Multiple Choice buy the equipment, saving $6,300 over leasing. lease the equipment, saving $6,300 over buying. lease the equipment, saving $54,000 over buying. buy the equipment, saving $54,000 over leasing.
Buffalo Inc. is considering whether to lease or purchase a piece of equipment. The total cost to lease the equipment will be $137,000 over its estimated life, while the total cost to buy the equipment will be $83,000 over its estimated life. At Buffalo’s required rate of return (hurdle rate), the net present value of the cost of leasing the equipment is $78,300 and the net present value of the cost of buying the equipment is $72,000. Based on financial factors, Buffalo should: Multiple Choice buy the equipment, saving $6,300 over leasing. lease the equipment, saving $6,300 over buying. lease the equipment, saving $54,000 over buying. buy the equipment, saving $54,000 over leasing.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Buffalo Inc. is considering whether to lease or purchase a piece of equipment. The total cost to lease the equipment will be $137,000 over its estimated life, while the total cost to buy the equipment will be $83,000 over its estimated life.
At Buffalo’s required
Multiple Choice
-
buy the equipment, saving $6,300 over leasing.
-
lease the equipment, saving $6,300 over buying.
-
lease the equipment, saving $54,000 over buying.
-
buy the equipment, saving $54,000 over leasing.
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