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Emerson Corporation is trying to decide whether to lease or purchase a piece of equipment needed for the next 5 years. The equipment would cost
Emerson Corporation is trying to decide whether to lease or purchase a piece of equipment needed for the next years. The equipment would cost $ to purchase, and maintenance costs would be $ per year. After years, Emerson estimates it could sell the equipment for $ If Emerson leases the equipment, it would pay $ each year, which would include all maintenance costs. Emerson's cost of capital is Future Value of $ Present Value of $ Future Value Annuity of $ Present Value Annuity of $
Note: Use appropriate factor from the PV tables.
Required:
a What is the net present value of the cost of purchasing the equipment?
b What is the net present value of the cost of leasing the equipment?
c Based on financial factors, should Emerson purchase or lease the equipment?
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