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Q] A construction company has to decide between two options; to purchase or to lease an asphalt plant based on the net present value comparison
Q] A construction company has to decide between two options; to purchase or to lease an asphalt plant based on the net present value comparison method. Detailed cost estimates are shown below. Determine which option is the most cost eective and by how much. The bank interest rate is 12%. Purchase option: Initial cost is $150,000. Salvage value at the end of 5 years is $30,000. Annual maintenance cost is estimated at $5,000 at year end. Leasing option: Annual lease is $30,000 increasing by 15% each year {payable at the start of year}. The plant will be maintained by the lessor
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