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A factory manager is evaluating whether to purchase or lease a major equipment for a new production. The purchase option requires an initial cost of
A factory manager is evaluating whether to purchase or lease a major equipment for a new production. The purchase option requires an initial cost of $97,000 plus annual operation and maintenance costs of $35,000. All the purchase option cash flows are in today's dollars. On the other hand, the lease option requires an initial non-refundable deposit of $112,000 and annual lease costs of $46,000, all in actual dollars. Using a before-tax market interest rate of 8% per year and an average inflation rate of 3.85% per year over the next several years, determine the PW of each option for an analysis period of 14 years. 1. The PW of the costs for the purchase option is approximately equal to O A. $132,000 O B. $470,398 O C. $466,709 O D. $385,548 2. The PW of the costs for the lease option is approximately equal to OA. $602,751 O B. $491,235 O C. $597,904 O D. $158,000
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