In: Finance
Assume a farmer has a choice of purchasing or leasing a machine.
If purchased, it would
cost $40,000, have annual cash operating expenses of $6,000, and a
salvage value of
$10,000 after 8 years. Leasing would require an initial payment of
$10,000, lease payments
of $12,500 at the end of each year, including the first, and the
same operating expenses of
$6,000 per year with no salvage value. Regardless of whether the
machine is leased or
purchased, it would provide $25,000 of cash inflows each year,
including the first year. If the
cost of capital is 10%, which is the better option?
Lease |
||
Buy |
||
Either |
||
Neither |