Assume a farmer has a choice of purchasing or leasing a machine. If purchased, it would...

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

Solutions

Expert Solution

Buy is preferable as it has highest NPV

jeff jeffy answered 6 months ago

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