You have to make a decision either to buy or to rent the equipment for your restaurant. Purchase cost would be $30,000. Of this amount, $7,500 would be paid cash now, and the balance would be owed to the equipment supplier. The owner agrees to accept $4,500 a year for five years as payment toward the principal, plus interest at 11 percent. The equipment will have a 5-year life and a residual value of $4000. The residual value can be recovered by trade-in or selling the equipment. Straight-line depreciation basis will be used over the 5 years. Alternatively, the equipment can be rented fort he 5 years at a rental cost of $7000 a year. Assume a 28% income tax rate. Discount rate to be used is 11%.

A. Using discounted cash flow, which would be the better investment?

B. What other factors might you want to consider that would change your decision?