PROBLEM FIVE The farm manager for OC would like to purchase a new machine with a useful life of three years. He is unsure whether to purchase or lease the machine. The following table outlines the expected net cash flows if the machine is purchased or leased. Assume OC has a required rate of return of 7%.

Year

Purchase

Lease

0

($42,100)

($15,000)

1

$16,000

$8,800

2

$17,000

$8,800

3

$16,500

$8,800

Total

$7,400

$11,400

What is the net present value of the lease option?

$8,093.84

$11,510.56

$16,790.99

None of the above.

2 points

Question 18

PROBLEM FIVE

The farm manager for OC would like to purchase a new machine with a useful life of three years. He is unsure whether to purchase or lease the machine. The following table outlines the expected net cash flows if the machine is purchased or leased. Assume OC has a required rate of return of 7%.

Year

Purchase

Lease

0

($42,100)

($15,000)

1

$16,000

$8,800

2

$17,000

$8,800

3

$16,500

$8,800

Total

$7,400

$11,400

What is the net present value of the purchase option?

a.

$1,170.64

b.

$6,816.07

c.

$9,540.34

d.

None of the above.

2 points

Question 19

PROBLEM FIVE

The farm manager for OC would like to purchase a new machine with a useful life of three years. He is unsure whether to purchase or lease the machine. The following table outlines the expected net cash flows if the machine is purchased or leased. Assume OC has a required rate of return of 7%.

Year

Purchase

Lease

0

($42,100)

($15,000)

1

$16,000

$8,800

2

$17,000

$8,800

3

$16,500

$8,800

Total

$7,400

$11,400

Should the company lease or purchase a new machine?

Lease

Purchase

Not enought information

None of the above