4. A manufacturing company wants to acquire a new closed circuit TV (CCTV) system. The new CCTV system can be purchased or it can be leased from the building in which the company has recently moved. If purchased, the system will cost $87,500 and will have a useful life of 5 years with no market value at that time. The annual operating cost is expected to be $52,000 per year. To lease the system, the company must pay a nonrefundable deposit of $21,500, an end-of-year leasing fee of $20,000, and an additional annual inspection and maintenance cost of $1000. Additionally, the operating costs incurred by the company will be reduced to $3400 per year. The company's after tax MARR is 10% per year and the effective income tax rate is 36% per year. Determine whether the company should purchase or lease the CCTV system. Assume straight-line depreciation with zero salvage value and a study period of 5 years.

Answer rating: 100% (QA)

To determine whether the company should purchase or lease the CCTV system we need to calculate the p... View the full answer