You own a construction compauy and need a tuck for one of yo

You own a construction compauy and need a tuck for one of your projects in a remote ea You have two options Initial cost, (S) Costs, Sye 4650 ahage vao 15 Life pay inents are made at the beginning of each year. Assuae an interest rate of7%and match the follonung questons wat! the closest correct Lease answers froen the give l Comect Match Selected Maich Atuimal worth of cost of buyingF$4069 F. 54068 Should the cceaptay lease of buy? D Buy D Buy Al Anawer Chsi

Solution

Option-A--lease Annual lease payment starting from Year-0 -4650 Annuity factor for three years including Yr-0 2.808 Present Worth -13057.2 Divide: Annuty for three years 2.6243 Annual Equivalent cash flows -4976 Option-B Purchase Annual operating cost -180 Annuity factor for 5 years at 7% 4.1001 Present worth -738.018 Add: Initial Investment 18000 Total present worth 18738 Less: Present value of salvage 2053 Net Present Worth 16685 Divide: Annuity factor 4.1001 Annual Equivalent cash flows 4069 Annual cost of Buy:   $ 4069 Annual cost of Lease: $ 4976 The company should BUY the asset