Your manager askes you to find out if a certain equipment should be bought or rented for a 4 year project. The equipment, rented or bought, has the same service life of 4 years and a 4 year linear deprecation. Additional cost is 5% on top of acquisition cost and the equipment has no salvage value. Income tax is 25% and the incremental borrowing rate er 6%. The equipment to buy costs 5,000,000. To rent the equipment it would cost 125,000 per month/1,500,000 per year/6,000,000 over the 4 years. 

Demonstrate in a simple way the influence on a yearly income statement and yearly balance sheet of buying and selling the equipment (show and label what numbers go where)? Make a yearly  for to buy the equipment and rent the equipment? 

Should the equipment be bought or rented based on NPV?

What are the implicit interest rates for this project?

Answer rating: 100% (QA)

To determine whether it is more financially advantageous to buy or rent the equipment for a 4year project we need to compare the Net Present Value NPV ... View the full answer