1.Your firm has a single copy machine for the tenth floor, and it has broken down yet again. Your firm must decide how to proceed in replacing the copier. So far, you have received two competing offers for comparable machines. Both offers are 3-year leases 2.Option A requires an up-front payment of $1,700 with additional annual payments of $1,200 at the beginning of years 2 and 3. The firm is also charged one-half of 1 cent, ($0.005), for each sheet printed, payable at the end of each year. Option B has no up-front cost. Its lease payment is $1,300, payable at the beginning of the year, and the per-sheet charge is 1 cent ($0.01), payable at the end of each year. You estimate that monthly use of the copy machine will amount to 1,500 copies. Determine an appropriate discount rate and discount the cash flows for each lease. Choose the best lease based on which lease costs less in present value terms. Be prepared to defend your choice.
1.Your firm has a single copy machine for the tenth floor, and it has broken down yet again. Your firm must decide how to proceed in replacing the copier. So far, you have received two competing offers for comparable machines. Both offers are 3-year leases 2.Option A requires an up-front payment of $1,700 with additional annual payments of $1,200 at the beginning of years 2 and 3. The firm is also charged one-half of 1 cent, ($0.005), for each sheet printed, payable at the end of each year. Option B has no up-front cost. Its lease payment is $1,300, payable at the beginning of the year, and the per-sheet charge is 1 cent ($0.01), payable at the end of each year. You estimate that monthly use of the copy machine will amount to 1,500 copies. Determine an appropriate discount rate and discount the cash flows for each lease. Choose the best lease based on which lease costs less in present value terms. Be prepared to defend your choice.
Related questions
Wolfson Corporation has decided to purchase a new machine that costs $3.3 million. The machine will be depreciated on a straight-line basis and will be worthless after four years. The corporate tax rate is 30 percent. The Sur Bank has offered Wolfson a four-year loan for $3.3 million. The repayment schedule is four yearly principal repayments of $825,000 and an interest charge of 8 percent on the outstanding balance of the loan at the beginning of each year. Both principal repayments and interest are due at the end of each year. Cal Leasing Corporation offers to lease the same machine to Wolfson. Lease payments of $975,000 per year are due at the beginning of each of the four years of the lease.
| a. | What is the NAL of leasing for Wolfson? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| NAL | $ |
| b. | What is the maximum annual lease payment Wolfson would be willing to pay? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| Annual lease payment | $ |
