You need a particular piece of equipment for your production process An equipment leasing company has offered to lease the equipment to you for $10,600 per year if you sign a guaranteed 5 year lease (the lease is paid at the end of each year) The company would also maintain the equipment for you as part of the lease Alternatively, you could buy and maintain the equipment yourself The cash flows from doing so are listed below (the equipment has an economic life of 5 years) If your discount rate is 7 9 , what should you do Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 $41,500 $2,400 $2,400 $2,400 $2,400 $2,400 Select one a The NPV of the leasing alternative is $53,000 The NPV of the purchase alternative is $53,500 Choose the leasing alternative because it has the lowest NPV b The NPV of the leasing alternative is $53,000 The NPV of the purchase alternative is $53,500 Choose the buying alternative because it has the highest NPV c d The NPV of the leasing alternative is $42,435 The NPV of the purchase alternative is $51,108 Choose the buying alternative because it has the highest NPV e The NPV of the leasing alternative is $42,435 The NPV of the purchase alternative is $51,108 Choose the leasing alternative because it has the lowest NPV

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Posted on Oct 03, 2024

You need a particular piece of equipment for your production process. An equipment-leasing company has offered to lease the equipment to you for $10,600 per

You need a particular piece of equipment for your production process. An equipment-leasing company has offered to lease the equipment to you for $10,600 per year if you sign a guaranteed 5 -year lease (the lease is paid at the end of each year). The company would also maintain the equipment for you as part of the lease. Alternatively, you could buy and maintain the equipment yourself. The cash flows from doing so are listed below (the equipment has an economic life of 5 years). If your discount rate is 7.9% , what should you do?


Year 0	Year 1	Year 2	Year 3	Year 4	Year 5
-$41,500	-$2,400	-$2,400	-$2,400	-$2,400	-$2,400

Select one:

The NPV of the leasing alternative is -$53,000. The NPV of the purchase alternative is -$53,500. Choose the leasing alternative because it has the lowest NPV.

The NPV of the leasing alternative is -$53,000. The NPV of the purchase alternative is -$53,500. Choose the buying alternative because it has the highest NPV.

The NPV of the leasing alternative is -$42,435. The NPV of the purchase alternative is -$51,108. Choose the buying alternative because it has the highest NPV.

The NPV of the leasing alternative is -$42,435. The NPV of the purchase alternative is -$51,108. Choose the leasing alternative because it has the lowest NPV.