EXERCISE 2: LEASING VERSUS You have two options: to buy or to lease a video store. Option 1: Purchase Year $300,000 80,000 45,000 70,000 90,000 105,000 140,000 160,000 Cost Additional cost Cash flow from operations Cash flow from operations Cash flow from operations Cash flow from operations Cash flow from operations Cash flow from operations Cash flow from operations Cash flow from operations Cash flow from operations Cash flow from operations Cash flow from sale of business 1 1 3 4. 5 165,000 170,000 175,000 9. 180,000 10 400,000 11
EXERCISE 2: LEASING VERSUS You have two options: to buy or to lease a video store. Option 1: Purchase Year $300,000 80,000 45,000 70,000 90,000 105,000 140,000 160,000 Cost Additional cost Cash flow from operations Cash flow from operations Cash flow from operations Cash flow from operations Cash flow from operations Cash flow from operations Cash flow from operations Cash flow from operations Cash flow from operations Cash flow from operations Cash flow from sale of business 1 1 3 4. 5 165,000 170,000 175,000 9. 180,000 10 400,000 11
Chapter3: Setting Up A New Company
Section: Chapter Questions
Problem 2.3C
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Question
![EXERCISE 2: LEASING VERSUS BUYING
You have two options: to buy or to lease a video store.
Option 1: Purchase
Year
$300,000
80,000
Cost
Additional cost
Cash flow from operations
Cash flow from operations
Cash flow from operations
Cash flow from operations
Cash flow from operations
Cash flow from operations
Cash flow from operations
Cash flow from operations
Cash flow from operations
Cash flow from operations
1
45,000
70,000
1
90,000
105,000
140,000
3
4.
6.
160,000
165,000
170,000
175,000
180,000
10
11
Cash flow from sale of business
400,000
If you want to make 25% on your money, should you buy the video store? To answer
this question, calculate the following:
1. Net present value
2. Internal rate of return
Option 2: Leasing
Activate
Go to Settin](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F3b3b035d-bf84-4b19-9bd9-2fd6251b57ea%2Fd22d5be8-94b2-42c8-8416-5102dc83a02f%2Fx3c9djm_processed.jpeg&w=3840&q=75)
Transcribed Image Text:EXERCISE 2: LEASING VERSUS BUYING
You have two options: to buy or to lease a video store.
Option 1: Purchase
Year
$300,000
80,000
Cost
Additional cost
Cash flow from operations
Cash flow from operations
Cash flow from operations
Cash flow from operations
Cash flow from operations
Cash flow from operations
Cash flow from operations
Cash flow from operations
Cash flow from operations
Cash flow from operations
1
45,000
70,000
1
90,000
105,000
140,000
3
4.
6.
160,000
165,000
170,000
175,000
180,000
10
11
Cash flow from sale of business
400,000
If you want to make 25% on your money, should you buy the video store? To answer
this question, calculate the following:
1. Net present value
2. Internal rate of return
Option 2: Leasing
Activate
Go to Settin
![You can lease a video store in another town. The net yearly cash flow from operations
after deducting lease payments is estimated at $45,000 (net) from year 1 to year 10.
1. If you want to make 25% on your investment, should you lease the video store?
2. Which of the two options would you choose?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F3b3b035d-bf84-4b19-9bd9-2fd6251b57ea%2Fd22d5be8-94b2-42c8-8416-5102dc83a02f%2Fbvdkzsar_processed.jpeg&w=3840&q=75)
Transcribed Image Text:You can lease a video store in another town. The net yearly cash flow from operations
after deducting lease payments is estimated at $45,000 (net) from year 1 to year 10.
1. If you want to make 25% on your investment, should you lease the video store?
2. Which of the two options would you choose?
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