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E.6. A contractor will need a hydraulic crane for a period of 24 months and has a choice of either leasing one for $2,100 per
E.6. A contractor will need a hydraulic crane for a period of 24 months and has a choice of either leasing one for $2,100 per month or buying one fully financed, with no down payment. If purchased, the monthly payments plus maintenance costs are estimated as follows: EOM Cost 1 through 6 7 8 through 24 24 $1,000/month $1,200 Increase $200/month each month from previous month Income of $10,000 resale value The total cash flow for the purchase and maintenance of the crane is $48,200. If the crane is leased, the cash flow is 24 months $2,100 per month = $50,400. Since the purchase al- ternative is the least costly in terms of cash flow, the contractor is tempted to purchase the crane rather than lease it. Determine which actually is the least costly alternative by calcu- lating the monthly equivalent cost. Assume i = 1 percent per month, and lease payments are made at the end of each month
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