Answered: Based on pretax analysis, should Mowbot…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 2P

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Question

Mowbot Company is evaluating the production of a new part. It would require the acquisition of a
special CNC lathe costing $375,000. The machine would be used for five years then sold for $135,000. Mowbot’s MARR is 15%.

In addition to the sales quotation, the sales representative has quoted a five year
lease for $81,000 per year, with the first year’s payment due on delivery. Based on pretax analysis,
should Mowbot choose leasing or buying?

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