Question
Jay is renting out a piece of equipment, from which he generates an income of $120,000 per year. The income decreases at a uniform amount
Jay is renting out a piece of equipment, from which he generates an income of $120,000 per year. The income decreases at a uniform amount of $5,000 each year after the first year that he received his income from the rent. The expected life of the equipment is 15 years. The investment cost is $800,000 and the interest rate is 9% per year. Assume the investment occurs now (at time zero). The annual income is first received at the end of the third year. a.) Draw Jay's cash flow diagram. b.) Determine if this is a good investment for Jay. Use the PW Method.
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