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Should purchase the system outright by paying now

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Problem 1: Your firm is purchasing a new telephone system that will last for four years. You can purchase the system for an up-front cost of $150,000, or you can lease the system from the manufacturer for $4,000 paid at the end of each month. The lease price is offered for a 48-month lease with no early termination - you cannot end the lease early. Your firm can borrow at an interest rate of 6% APR with monthly compounding. Should you purchase the system outright by paying $150,000 now or pay $4,000 per month?


A. You should choose to pay $4,000 per month.

B. You should choose to purchase the system outright by paying the upfront cost of $150,000.

C. You can either choose to purchase the system outright by paying the upfront cost of $150,000 or choose to pay $4,000 per month, because the present values of these two choices are the same.

D. None

Reference no: EM132902449

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