Question
Your firm specializes in the construction of short track speed skating ice rinks. The popularity of this sport at the Winter Olympics has resulted in
Your firm specializes in the construction of short track speed skating ice rinks. The popularity of this sport at the Winter Olympics has resulted in lots of new business for your firm. To meet this demand, you've decided to buy or lease a new Terex tower crane for use over the next four years. You have two choices:
Buy the crane from Terex for $600,000 and sell it back to them in 48 months for $240,000.
Lease the crane from Terex for $11,000 per month for 48 months. If you choose to lease the crane, they will make the first and last payments on your behalf (so that you only have to make payments in months 2 through 47).
Your opportunity cost of capital is 0.8% per month. Should you lease or buy the new crane?
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