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What is the present worth of item b the lease choice

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Reference no: EM132659519

Your company needs a new system for the next eight years to evaluate transmission lines. The two ways to obtain this equipment, purchase or lease are described below. The interest rate is 5% per year.

A. Purchase: Initial cost of $12,000, a $1,200 salvage value and an eight year useful life.
B. Lease: $2,250 per year paid at the beginning of the year.

Question 1: What is the present worth of the Item A, the purchase choice?

Question 2: What is the present worth of Item B, the lease choice?

Question 3: Which choice would you recommend for the company?

Reference no: EM132659519

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