1 VIRGIN 4:58 PM CR 82% Done Assignment #2 Salvage values 50,000 6 20.000 Life, years QUESTION #5 (10 marks) (#5) A small strip-mining coal company is trying to decide whether it should purchase or lease a new clamshell. If purchased, the shell will cost $150,000 and is expected to have a $65,000 salvage value in 6 years. Alternatively, the company can lease a clamshell for $30,000 per year, but the lease payment will have to be made at the beginning of each year. If the clamshell is purchased, it will be leased to other strip-mining companies whenever possible, an activity that is expected to yield revenues of $12,000 per year. If the company's minimum attractive rate of return is 15% per year, should the clamshell be purchased or leased based on a future worth analysis? QUESTION #6 (10 marks) (#6) Baker-Trimline owned a specialized tools company for a total of 12 years when it was sold for $38 million cash. During the ownership, annual net cash flow varied significantly as follows: 1234 56789101112 Net Cash Flow. 40-1-3-31468101212 millions per year Year The company made 12% per year on its positive cash flows and paid 10% per year on short-term loans to cover the lean years. The president wants to use the cash accumulated after 12 years to improve capital investments starting in year 13 and forward. If an 8% per return is expected after the sale, what annual amount can Baker-Trimline invest forever? [Find the future value in year 12, then A to infinity(forever)] (#5) A small strip-mining coal company is trying to decide whether it should purchase or lease a new clamshell. If purchased, the shell will cost $150,000 and is expected to have a $65,000 salvage value in 6 years. Alternatively, the company can lease a clamshell for $30,000 per year, but the lease payment will have to be made at the beginning of each year. If the clamshell is purchased, it will be leased to other strip-mining companies whenever possible, an activity that is expected to yield revenues of $12,000 per year. If the company's minimum attractive rate of return is 15% per year, should the clamshell be purchased or leased based on a future worth analysis