Answer:
1. The payback period is:
= 3 years
2. The benefit-cost ratio is:
= 1.1
Explanation:
a) Data and Calculations:
                                    Leasing Computer    Buying Computer &
                                         with Software       Leasing Software
Annual lease payment     $5,000                      $3,500
Cost of computer                                                $7,500
Salvage value of computer                                   $500
Usage period                       8 years                   8 years
Interest rate                         5%                           5%
Present value annuity factor 6.463                    6.463
Present value factor for salvage                        0.677
Present value of annuity    $32,315                $29,782 ($22,621 + $7,500 - 339)
$22,782 = ($3,500 * 6.463 + $7,500 - ($500 * 0.677))
Benefit-cost ratio = $32,315/$29,782 = 1.1