(Ignore Income taxes in this problem.) The Wilson Company is contemplating the purchase of a helicopter for its executives to use in their business trips. This helicopter could be either purchased or leased from the manufacturer. The useful life of the helicopter is four years. Data concerning these two alternatives follow: Buy Lease P Purchase Price 900,000 Annual Cash payments for servicing and 10,000 Licenses Cash payments for repairs End of second year 6,000 End of third year 8,000 Salvage value 270,000 Annual rental payment P250,000 If the helicopter is leased, it would be returned to the manufacturer in four years. Wilson required rate of return is 22%. The incremental net present value in favor of leasing rather than purchasing is (rounded off to the nearest hundred pesos):

(Ignore Income taxes in this problem.) The Wilson Company is contemplating the purchase of a helicopter for its executives to use in their business trips. This helicopter could be either purchased or leased from the manufacturer. The useful life of the helicopter is four years. Data concerning these two alternatives follow: Buy Lease P Purchase Price 900,000 Annual Cash payments for servicing and 10,000 Licenses Cash payments for repairs End of second year 6,000 End of third year 8,000 Salvage value 270,000 Annual rental payment P250,000 If the helicopter is leased, it would be returned to the manufacturer in four years. Wilson required rate of return is 22%. The incremental net present value in favor of leasing rather than purchasing is (rounded off to the nearest hundred pesos):

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 2P

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