A second option is to purchase the machine outright. In fact, after the lease expires, you are

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Question:

A second option is to purchase the machine outright. In fact, after the lease expires, you are considering buying your firm's next copier. (1) You need to obtain a minimum of two offers before buying a copy machine. Your needs include a multifunction machine capable of copying, faxing, and printing, with networking capability because all workers on the tenth floor will be sharing it. The purchase price should approximate the present value calculations from part a. In your search, you must consider not only the purchase price of the machine, but also the cost of any warranty/service agreement. In addition, you must adjust the current price for expected inflation. Take the price for the machine today and find out what the price will be in 3 years given a 3% compound annual inflation rate. Alternatively, you could calculate what the price would be given a 5% annual rate of decrease, as that is the observed trend over recent years. (2) Because you want to save for this expenditure (rather than take out a loan for it), you need information about savings rates at a local bank. (Here "bank" refers to any depository institution, including those that are strictly online operations.) After getting a rate for a savings account, calculate what amount you would have to deposit today to have the dollar value of the machine you wish to buy at the end of 3 years. If, instead, you wanted to make annual deposits at the end of each of the next 3 years, how much should you deposit? What if those three equal deposits were made at the beginning of each year? Find the present value of these cash flows using a 6% discount rate.