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A company is considering investing $7,500 in a heat exchanger. The heat exchanger will last five years, at which time it will be sold for
A company is considering investing $7,500 in a heat exchanger. The heat exchanger will last five years, at which time it will be sold for $2,000. The maintenance cost at the end of the first year is estimated to be $500. Maintenance costs for the exchanger are estimated to increase by $500 per year over its life. As an alternative, the company may lease the equipment for $X per year, including maintenance, with the annual payments to made at the end of each year. a. Choose cash flow diagrams of both alternatives. b. For what value of X should the company lease the heat exchanger? The company expects to earn 5% on its investments. Assume end-of-year lease payments
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