You need a particular piece of equipment for your production process. An equipment-leasing company has offered to lease the equipment to you for $10,100 per year if you sign a guaranteed 5-year lease (the lease is paid at the end of each year). The company would also maintain the equipment for you as part of the lease. Alternatively, you could buy and maintain the equipment yourself. The cash flows from doing so are listed below (the equipment has an economic life of 5 years). If your discount rate is 7.4%, what should you do? Year 0 -$40,000 Year 1 -$1,900 Year 2 -$1,900 Year 3 -$1,900 Year 4 -$1,900 Year 5 -$1,900
You need a particular piece of equipment for your production process. An equipment-leasing company has offered to lease the equipment to you for $10,100 per year if you sign a guaranteed 5-year lease (the lease is paid at the end of each year). The company would also maintain the equipment for you as part of the lease. Alternatively, you could buy and maintain the equipment yourself. The cash flows from doing so are listed below (the equipment has an economic life of 5 years). If your discount rate is 7.4%, what should you do? Year 0 -$40,000 Year 1 -$1,900 Year 2 -$1,900 Year 3 -$1,900 Year 4 -$1,900 Year 5 -$1,900
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:You need a particular piece of equipment for your production process. An equipment-leasing company has offered to lease the equipment to you for $10,100 per year if you sign a guaranteed
5-year lease (the lease is paid at the end of each year). The company would also maintain the equipment for you as part of the lease. Alternatively, you could buy and maintain the equipment
yourself. The cash flows from doing so are listed below (the equipment has an economic life of 5 years). If your discount rate is 7.4%, what should you do?
Year 0
-$40,000
Year 1
-$1,900
Year 2
-$1,900
Year 3
-$1,900
Year 4
-$1,900
Year 5
-$1,900
The net present value of the leasing alternative is $
(Round to the nearest dollar.)
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