Purchasing Property, Plant, and Equipment Jordon Company is considering replacing its automated stamping machine. The machine is
Question:
Purchasing Property, Plant, and Equipment Jordon Company is considering replacing its automated stamping machine. The machine is specialized and very expensive. Jordon is considering three acquisition alternatives. The first is to lease a machine for 10 years at $1 million per year, after which time Jordon can buy the machine for $1 million. The second alternative is to pay cash for the machine at a cost of $7 million. The third alternative is to make a down payment of $3 million, followed by 10 annual payments of $550,000. The company is trying to decide which alternative to select.
Required:
1. Assuming the present value of the lease payments is $7.2 million and the present value of the 10 loan payments of $550,000 is $4.1 million, determine which alternative Jordon should choose.
2. Interpretive Question: Your decision in part (1) was based only on financial factors.
What other qualitative issues might influence your decision?
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