Question

April plans to lease a machine for her photography business. She can lease an RX90 Scanner...

April plans to lease a machine for her photography business. She can lease an RX90 Scanner for $3,500 per year for 4 years as well as pay a onetime $650 initial set up fee. April can also lease a PA36 scanner for $4,200 per year for 3 years as well as pay a onetime inital set up fee of $350. Because april's business is a non-profit business, she does not pay taxes. If April's required return is 10% and she will need to replace either machine when the respective lease ends, which machine should she choose?

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Answer #1
Scanner Type Setup Cost PVIFA Setup Cost Annual Lease Total Annualised Cost
RX90 Scanner 650      3.1699      205.06           3,500              3,705
PA36 scanner 350      2.4869      140.74           4,200              4,341

Since annualised cost of RX90 Scanner is lower as compared to PA36 Scanner, April should choose RX90 Scanner.

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