Question
Frank Incorporated is trying to decide whether to lease or purchase a piece of equipment needed for the next 10 years. The equipment would
Frank Incorporated is trying to decide whether to lease or purchase a piece of equipment needed for the next 10 years. The equipment would cost $46,000 to purchase, and maintenance costs would be $5,700 per year. After 10 years, Frank estimates it could sell the equipment for $21,000. If Frank leased the equipment, it would pay a set annual fee that would include all maintenance costs. Frank has determined after a net present value analysis that at its cost of capital of 12%, it would be better off by $13,300 if it buys the equipment. What would the approximate annual cost be if Frank were to lease the equipment? ( Future Value of $1. Present Value of $1. Future Value Annuity of $1. Present Value Annuity of $1) Note: Use the appropriate factors from the PV tables.
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