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An agricultural accounting firm needs a new copy machine
An agricultural accounting firm needs a new copy machine. If it leases the copier on a five-year lease, five rental payments of $900 will be made at the end of the year, including the first. Alternatively, the firm could purchase the copier. If purchased, an initial investment of $500 would be required. Amortized loan payments of $500 would then be made at the end of years 1-5. The copier would have no salvage value at the end of five years. $2200 in cash inflow each year would be attributed to the copier. The cost of capital is 9%. Would it be better for the accounting firm to purchase or lease the copier? Why?
a. Buy because NPVbuy of $6112 is greater than NPVlease of $5057
b. Lease because NPVlease of $6112 is greater than NPVbuy of $5057
c. The accounting firm is indifferent since NPVbuy = NPVlease
d. There is not enough information to answer this question
Expert Solution
The correct option is A "Buy because NPVbuy of $6112 is greater than NPVlease of $5057".
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