Your company is trying to decide whether it should purchase a copier from Xerox or lease it. The copier has an expected life of 6 years, after which it has only marginal value (you can ignore any residual value). If you purchase it, the price is $145,000, payable now, and you would have to pay an annual service charge of $8,000. If you lease it, you would have an annual payment of $36,000 each year (for 6 years), which includes service. The lease payment and the annual service charge occur at the beginning of each year. The interest rate is 3.8%. Which option is least costly?
Your company is trying to decide whether it should purchase a copier from Xerox or lease it. The copier has an expected life of 6 years, after which it has only marginal value (you can ignore any residual value). If you purchase it, the price is $145,000, payable now, and you would have to pay an annual service charge of $8,000. If you lease it, you would have an annual payment of $36,000 each year (for 6 years), which includes service. The lease payment and the annual service charge occur at the beginning of each year. The interest rate is 3.8%. Which option is least costly?
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 16P: Shao Airlines is considering the purchase of two alternative planes. Plane A has an expected life of...
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Your company is trying to decide whether it should purchase a copier from Xerox or lease it. The copier has an expected life of 6 years, after which it has only marginal value (you can ignore any residual value). If you purchase it, the price is $145,000, payable now, and you would have to pay an annual service charge of $8,000. If you lease it, you would have an annual payment of $36,000 each year (for 6 years), which includes service. The lease payment and the annual service charge occur at the beginning of each year.
The interest rate is 3.8%. Which option is least costly?
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