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You need a particular piece of equipment for your production process. An equipment-leasing company has...

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Question

Finance

You need a particular piece of equipment for your production process. An equipment-leasing company has offered to lease the equipment to you for

$10,000

per year if 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 yourself. The cash flows from doing so are listed below (the equipment has an economic life of

5

years). If your discount rate is

7.0%,

what should you do?

Year 0

Year 1

Year 2

Year 3

Year 4

Year 5

$40,000

$2,000

$2,000

$2,000

$2,000

$2,000

The net present value of the leasing alternative is

$nothing.

(Round to the nearest dollar.)

Answer & Explanation Solved by verified expert
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