age 2017-06-15 at 1458.30jpeg Add to a creation Inc h a company that designs, ma

Question

age 2017-06-15 at 1458.30jpeg Add to a creation Inc h a company that designs, makes, and sells computer and home entertainment sound systems, along with a line of headphones and mic heather & shoud parchase or hoase a building for its mansdfacturing and research and development operation in UAE. Iif the building is lessed, a esdimated costs are the following Lease (or Alternatrve Purchase Rent) inbal Cosl$320 000 $40,000 Lease (or Rent) Annual Operating Costs $8,500 Salvage Value Life, years $7000 80,000 wach alternative should be recommended based on the present-worth method" Use MARR of 10% ? PW of Purchase Option A 3025515 B-193.337 C 49672 D. Purchase E Lease F 67942 6 -319327 PW of the lease Option Salvage value of purchase Option ?? Decision to Purchase or Lease

Explanation / Answer

Present worth of purchase option

=-320000/((1+0.1)^0)-8500/((1+0.1)^1)-8500/((1+0.1)^2)-8500/((1+0.1)^3)-8500/((1+0.1)^4)- 8500/((1+0.1)^5)+80000/((1+0.1)^5)

= -$302548

Present worth of lease option

=-40000/((1+0.1)^0)-7000/((1+0.1)^1)
= $-46364

Salvage value of purchase option = $49673.7

=80000/((1+0.1)^5) = $49673.7

Since the PW of lease is higher than purchase it is better to lease

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