Linda Peddler owns a bicycle factory. She could either rent or buy a machine to increase...

Linda Peddler owns a bicycle factory. She could either rent or buy a machine to increase her factory’s production capacity. She can rent the machine for its expected life of 10 years for 120 payments of $1,000, due at the end of each month. The appropriate annual discount rate for the payments is 6.40%. At what price should Ms. Peddler be indifferent between renting and purchasing the machine?
How does your answer to item a change if the annual discount rate moves to 5.43%?
The DLW Group signs a commercial lease for office space. Under the terms of the lease, DLW will pay $10,000 in rent at the beginning of each month for five years. The proper annual discount rate for this stream of payments is 8.98%. What is the present value of DLW’s obligation under the lease?
How does your answer to item c. change if the annual interest rate changes to 10.25%?

Expert Solution

Ans:

Please find attached answer sheets below. Sheet 1 contains answer for all 4 parts and sheet 2 contains formulas.

Part A & B is rental payment are considered received at end, For part C & D it is considered at the beginning of each month as given in the question.

For any query please ask in comment box. Also please provide don't forget to provide your valueable feedback. Thanks!

ekkarill92 answered 1 year ago

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