Item12

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Item 12

Foster Inc. is trying to decide whether to lease or purchase a piece of equipment needed for the next ten years. The equipment would cost $48,000 to purchase, and maintenance costs would be $5,200 per year. After ten years, Foster estimates it could sell the equipment for $27,000. If Foster leases the equipment, it would pay $17,000 each year, which would include all maintenance costs. If the hurdle rate for Foster is 11%, Foster should: (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor from the PV tables. Do not round intermediate calculations. Round your final answer to the nearest hundred.)

Multiple Choice

• buy the equipment, as net present value of cost is about $48,000 less.

• lease the equipment, as net present value of cost is about $31,000 less.

• lease the equipment, as net present value of cost is about $27,300 less.

• buy the equipment, as net present value of cost is about $31,000 less.