(25 Points)(Must show detailed work) Finch, Inc. has bought a new server and is

Question

(25 Points)(Must show detailed work) Finch, Inc. has bought a new server and is having to decide what to do with the old server was originally $60,000 and has been depreciated $45,000. The company has received two offers that it must consider. One offer was made to purchase the equipment outright for $18,500 less a 5% sales commission. The other offer was to lease the equipment for $7,000 for the next five years but the company will be required to provide maintenance and insurance totaling $3,000 per year. What offer should Finch, Inc accept? one. The cost of the old

Explanation / Answer

Value of benefit received under offer 1 : cost(1-% sales commission)

            = 18500 (1-.05)

            = 18500*.95

               = $ 17575

Value of benefit under offer 2 :[Revenue -cost ]*number of years

                 = [7000-3000]*5

                  = 4000*5

                 = 20000

since the benefit under offer2 is higher ,offer 2 should be accepted that to lease the older server.

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