3. In the leasing discussion, James informs Nick that the contract could include a purchase option for the equipment at the end of the lease.

Hendrix Leasing offers three purchase options:

1. An option to purchase the equipment at the fair market value.

2. An option to purchase the equipment at a fixed price. The price will be negotiated before the lease is signed.

3. An option to purchase the equipment at a price of $250 000.

How would the inclusion of a purchase option affect the value of the lease? Warf Computers has decided to proceed with the manufacture and distribution of the virtual keyboard (VK) the company has developed. To undertake this venture, the company needs to obtain equipment for the production of the microphone for the keyboard. Because of the required sensitivity of the microphone and its small size, the company needs specialised equipment for production.

Nick Warf, the company president, has found a vendor for the equipment.

Clapton Acoustical Equipment has offered to sell Warf Computers the necessary equipment at a price of $6.1 million. Because of the rapid development of new technology, the equipment falls in the three-year depreciation. At the end of four years, the market value of the equipment is expected to be $780 000.