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NPV and EAC (a) What is the NPV for a machine that can be purchased for $20,000, has an annual maintenance cost of $4,000, and
NPV and EAC
(a) What is the NPV for a machine that can be purchased for $20,000, has an annual maintenance cost of $4,000, and will last for five years? The opportunity cost of capital is 12 percent? (2 marks)
(b) Instead of buying the machine, you may lease it (i.e., just make annual payments for the next five years). What is the maximum you would be willing to lease the machine for? Assume the same discount rate. (Hint: Compute the EAC) (2 marks)
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