1. A farmer is about to make a lease or buy decision about a tractor. The tractor is

financed at an interest rate of 8% for seven years, with an annual payment of $10 564.

The cash flows of both options for seven years and the factors taken into consideration

are summarized in the table below. Also, it is assumed that there are no repair costs

associated with leasing the equipment.

(a) Using net present value of cost, determine the best approach for the farmer.

Purchase

(b) Explain why fuel cost is not included in the comparison.