Question

You need a particular piece of equipment for your production process. An​ equipment-leasing company has offered to lease the equipment to you for

$ 10 comma 100$10,100

per year if you sign a guaranteed

55​-year

lease​ (the lease is paid at the end of each​ year). The company would also maintain the equipment for you as part of the lease.​ Alternatively, you could buy and maintain the equipment yourself. The cash flows from doing so are listed below​ (the equipment has an economic life of

55

​years). If your discount rate is

6.7 %6.7%​,

what should you​ do?

Year 0	Year 1	Year 2	Year 3	Year 4	Year 5
negative $ 41 comma 000−$41,000	negative $ 1 comma 800−$1,800	negative $ 1 comma 800−$1,800	negative $ 1 comma 800−$1,800	negative $ 1 comma 800−$1,800	negative $ 1 comma 800−$1,800

The net present value of the leasing alternative is

​$nothing.

​(Round to the nearest​ dollar.)

Answer 1