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Lease vs. Buy Decision Lease Option: oAnnual lease payment: $100,000 for 5 years oNo ownership at the end of the lease term Buy Option: oPurchase
Lease vs. Buy Decision
•Lease Option:
oAnnual lease payment: $100,000 for 5 years
oNo ownership at the end of the lease term
•Buy Option:
oPurchase price: $450,000
oUseful life: 5 years
oSalvage value: $50,000
oAnnual maintenance costs: $20,000
Requirements:
1.Calculate the total cost of leasing.
2.Calculate the total cost of buying, including depreciation (straight-line).
3.Determine the Net Present Value (NPV) of leasing and buying with a discount rate of 6%.
4.Recommend the best option based on NPV analysis.
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