Make capital-budgeting decision using net present value (L.O. 5)

Slow to Change Company has decided to computerize its accounting system. The company has two alternativesit can lease a computer under a three-year contract or purchase a computer outright.

If the computer is leased, the lease payment will be $5,000 each year. The first lease payment will be due on the day the lease contract is signed. The other two payments will be due at the end of the first and second years. The lessor will provide all repairs and maintenance.

If the company purchases the computer outright, it will incur the following costs:

Acquisition cost $10,500 Repairs and maintenance: First year 300 Second year 250 Third year 350