Net Present Value of Leasing Assignment


Net Present Value of Leasing Assignment

You have just been offered a contract worth $1,04 million per year for 5 years. However, to take the contract, you will need to purchase some new equipment Your discount rate for this project is 11.6%. You are still negotiating the purchase price of the equipment. What is the most you can pay for the equipment and still have a positive NPV?

The most you can pay for the equipment and achieve the 116% annual return is $1 million (Round to two decimal places.)

 You need a particular piece of equipment for your production process. An equipment-leasing company has offered to lease the equipment to you for $9,900 per year i you sign a guaranteed 5 year lease the lease is paid at the end of each year). The company would also maintain the equipment for you as part of the lease Alternatively, you could buy and maintain the equipment yoursell. The cash flows from doing so are listed below (the equipment has an economic life of 5 years). If your discount rate is 7.1%, what should you do?

Year o – 540,600 Year 1 – $2,100 Year 2 – $2,100 Year 3 -$2,100 Year 4 — $2,100 Year 5 -$2,100

The net present value of the leasing alternative is $ (Round to the nearest dollar.) Get Finance homework help today

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