Economics · Leasing Decisions
The cost of purchasing a machine is $100,000 payable immediately. Its disposal value is expected to be $10,000 in five years' time. The same asset can be leased for a period of five years with rentals of $25,000 payable annually in advance. The appropriate discount rate is 10% per year. What is the net present value (NPV) to the LESSOR if it purchases the machine then leases it to the user on the above terms?
- 1$11,440 negative
- 2$1,960 negative
- 3$990 positive
- 4$10,460 positive✓
Correct answer
$10,460 positive
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