Question
1. A car costs $17,900, alternatively, the car can be leased for 4 years by making payments of $312 at the beginning of each month
1. A car costs $17,900, alternatively, the car can be leased for 4 years by making payments of $312 at the beginning of each month and then bought at the end of the lease for $4,582. If interest is 4% compounded annually, which alternative is preferable ?
The car should be? a) purchased immediately b) leased first and the bought
2. A company has to make a decision about expanding its production facilities. Research indicates that the desired expansion would require an immediate outlay of $70,000 and an outlay of a further $20,000 in 4 years. The net cash returns are shown below. Find the net present value of the project. According to the net present value criterion, should the expansion project be undertaken if the required rate of return is 7%?
year 1 to year 5: $15,000 per year
year 6 to year 9 $10,000 per year
The net present value of the expansion project is $
3. A company is considering purchasing equipment costing $90,000. The equipment is expected to reduce costs from year 1 to 5 by $20,000, year 6 to 11 by $15,000, and in year 12 by $3,000. In year 12, the equipment can be sold at a salvage value of $22,000. Calculate the internal rate of return (IRR) for this proposal.
The internal rate of return is %?
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