Dallas Corp. Is trying to decide whether to lease or purchase a piece of equipme

Question

Dallas Corp. Is trying to decide whether to lease or purchase a piece of equipment needed for the next five years. The equipment would cost $100,000 to purchase, and maintenance costs would be $10,000 per yea Ater five years, Dalas estimates it could sell the equipment for $30,000. rDalas leased the equipment, it would pay a set annual fee thet would include all martenance costs. Dallas hasdo er i ed after a net present value analysis that at its hurdle ate of 12% t would be better om b y S 100 t leases the ea ap t. What would the approximate annual cost be if Dallas were to lease the equipment? (Future Value of $1. Present Value of $1. Euture Value Annuity of $1. Present Value Annulity of S11 (Use appropriate factor from the PV tables. Do not round intermediate calculations. Round your final answer to the nearest hundred) O $34.700 O $30.000 O $21,800 O $27800

Explanation / Answer

Solution:-

Now as per the question,

equation must be as

Outflow for Equipment Purchased - outflow of Equipment Leased = 11000

= 119026 - 3.6048x =11000

=119026-11000 = 3.6048x

=108026 = 3.6048x

x =108026/3.6048

x = $29967

Rounded to Nearest Hundred = $30000

Calculation of Net Present Value if Equipment Purchased Particulars Amount Cost of Equipment 100000 ($100000*1) Less:- Salvage Value 17022 (30000*0.5674) Add:- Maintainence Costs 36048 (10000*3.6048) Total Outflow 119026 Calculation of Net Present Value if Equipment Leased Let Mainitainence Cost be x Present Value of Mainitaince Cost 3.6048x (x*3.6048)

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