Purchased or leased on the basis of future worth analysis

Assignment Help Financial Management

Reference no: EM131888385

A small strip-mining coal company is trying to decide whether it should purchase or lease a new clamshell. If purchased, the “shell” will cost $172,500 and is expected to have a $45,000 salvage value after 6 years. Alternatively, the company can lease a clamshell for only $15,000 per year, but the lease payment will have to be made at the beginning of each year. If the clamshell is purchased, it will be leased to other strip-mining companies whenever possible, an activity that is expected to yield revenues of $8,000 per year. If the company’s MARR is 12% per year, should the clamshell be purchased or leased on the basis of a future worth analysis? Assume the annual M&O cost is the same for both options.

The future worth when purchased is $ .

The future worth when leased is $ .

The clamshell should be.

Reference no: EM131888385

Questions Cloud

Prepare a schedule of future taxable and amounts : The company sells its merchandise on an installment contract basis. In 2018, Gibson elected, for tax purposes, to report the gross profit from the sales.

Bank-accepted draft in an international trade transaction : Explain the benefits to importers and exporters of using a letter of credit and a bank-accepted draft in an international trade transaction.

What could the company do to offset this exposure : What could the company do to offset this exposure?

Should you undertake this investment opportunity : However, a bank offers to lend you up to $175,000 at 6% with no conditions. Should you undertake this investment opportunity?

Purchased or leased on the basis of future worth analysis : should the clamshell be purchased or leased on the basis of a future worth analysis?

What is the amount of interest that should be capitalized : During 2017, Kimmel Co. incurred weighted-average accumulated expenditures of $1,600,000 during construction of assets that qualified for capitalization.

Company hedge its foreign exchange exposure : Should a company hedge its foreign exchange exposure? Explain reasons for and against hedging.

Managers pay dividends because of investor demand : The catering theory of dividends suggests that managers pay dividends because of investor demand.

Prepare the journal entry necessary to record the change : In 2017, Frost Company, which began operations in 2015, decided to change from LIFO to FIFO because management believed that FIFO better represented the flow.

User Account

All Pages