end of each year of use) and a new contract the client is considering entering will fix the pree over the next four years. The client is also considering purchasing a different CNC systenhe replace its currently leased system (rather than renewing /entering a new lease contract). 1he new system will cost $450,000 to purchase and install (and for training of employees in use). salvage value of $30,000. The interest rate is projected to be 6% per year during the life of the project. a. Draw a cash flow diagram for the next four vears for the existing system (leased system) and a separate cash flow diagram for the system that is being considered for purchase. b. For each option (leasing and buying), calculate the value of all cash receipts and disbursements at the end of the third year. C. Compare the value of each option at the end of the third year. What should the client do?
end of each year of use) and a new contract the client is considering entering will fix the pree over the next four years. The client is also considering purchasing a different CNC systenhe replace its currently leased system (rather than renewing /entering a new lease contract). 1he new system will cost $450,000 to purchase and install (and for training of employees in use). salvage value of $30,000. The interest rate is projected to be 6% per year during the life of the project. a. Draw a cash flow diagram for the next four vears for the existing system (leased system) and a separate cash flow diagram for the system that is being considered for purchase. b. For each option (leasing and buying), calculate the value of all cash receipts and disbursements at the end of the third year. C. Compare the value of each option at the end of the third year. What should the client do?
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 1PA: Your company is planning to purchase a new log splitter for is lawn and garden business. The new...
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