Question

Assume a farmer has a choice of purchasing or leasing a machine. If purchased, it would cost $40,000, have annual cash operating expenses of $6,000, and a salvage value of $10,000 after 8 years. Leasing would require an initial payment of $10,000, lease payments of $12,500 at the end of each year, including the first, and the same operating expenses of $6,000 per year with no salvage value. Regardless of whether the machine is leased or purchased, it would provide $25,000 of cash inflows each year, including the first year. If the cost of capital is 10%, which is the better option?

	a.	Lease
	b.	Buy
	c.	Either
	d.	Neither

Answer 1

Option "B" BUY

(Please provide your valuable feedback and do comment if have any query. Thank You.)