Memories, Inc. currently leases its equipment from Quality Materials, Inc. for $2,500 per month. Two years of their contracted five-year lease term remain. MI may terminate the lease at any time by paying a penalty of $10,000. They are considering purchasing the equipment from Quality Materials, Inc. to replace the leased equipment. MI must purchase 10 units of each piece of equipment. Memories, Inc. can purchase equipment at the following prices:

Equipment	Price per unit
Heater	$ 2,100
Injection molder	$ 5,450
Sealer	$ 4,100
Cardboard cutter	$ 2,695
Label installer	$ 1,000

Required:

Using NPV analysis, compare the present value of the least payments with the cost of buying the equipment. Assume a discount rate of 10 percent (ignore tax.) Which option is preferable?

MI has the option of purchasing equipment from another supplier at a total cost of $190,000. The supplier promises that the new equipment will reduce operating costs by $1,000 per month over the life of the equipment. Assume a 10 percent discount rate (ignore tax.) Which option is preferable?

Calculate the after-tax NPV for each option in A and B assuming a 30 percent tax rate. If purchased, all equipment will be depreciated over five years, using straight-line depreciation, and will have no salvage value. Which of the three options is preferable now? (Lease, Purchase from Quality Materials, Purchase for $190,000)