Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Kiddy Toy Corporation needs to acquire the use of a machine to be used in its manufacturing process. The machine needed is manufactured by Lollie
Kiddy Toy Corporation needs to acquire the use of a machine to be used in its manufacturing process. The machine needed is manufactured by Lollie Corp. The machine can be used for 10 years and then sold for $15,000 at the end of its useful life. Lollie has presented Kiddy with the following options: (FV of $1. PV of $1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) 1. Buy machine. The machine could be purchased for $165,000 in cash. All insurance costs, which approximate $10,000 per year, would be paid by Kiddy. 2. Lease machine. The machine could be leased for a 10-year period for an annual lease payment of $30,000 with the first payment due immediately. All insurance costs will be paid for by the Lollie Corp. and the machine will revert back to Lollie at the end of the 10- year period. Required: Assuming that a 12% interest rate properly reflects the time value of money in this situation and that all maintenance and Insurance costs are paid at the end of each year, determine which option Kiddy should choose. Ignore Income tax considerations. (Negative amounts should be indicated by a minus sign. Round your final answers to nearest whole dollar amount.) Buy option Lease option Kiddy should choose
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started