On January 1, a machine with a useful life of four years and a salvage value of $16000 was purchased for $80000. What is the dep
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Answer:
The lease would be a better option as their net preset worth is lower than purcahse the machine and carry their cost.
Explanation:
<u>Option A purchase</u>
F0 -160,000
operating cost 5000 per year we solve for the present value of an annuity
C 5,000.00
time 10
rate 0.12
PV -$28,251.1151
PV of the salvage value
Maturity $10,000.0000
time 10.00
rate 0.12000
PV 3,219.7324
<u><em>present worth</em></u>
-160,000 - 28,251.11 + 3,219.73 = -185.031,38
<u>Option B Lease</u>
10 payment beginning immediatly of $25,000
Therefore, it is an annuity-due
C 25,000.00
time 10
rate 0.12
PV -$158,206.2448