Foster Inc

question 98

Multiple Choice

Foster Inc. is trying to decide whether to lease or purchase a piece of equipment needed for the next ten years. The equipment would cost $45,000 to purchase, and maintenance costs would be $5,000 per year. After ten years, Foster estimates it could sell the equipment for $20,000. If Foster leases the equipment, it would pay $12,000 each year, which would include all maintenance costs. If the hurdle rate for Foster is 10%, Foster should:

• A) lease the equipment, as net present value of cost is about $5,700 less.
• B) buy the equipment, as net present value of cost is about $5,700 less.
• C) lease the equipment, as net present value of cost is about $2,000 less.
• D) buy the equipment, as net present value of cost is about $45,000 less.

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Definitions:

Ultimate Consumer

The end-user or final buyer of a product or service, typically individuals purchasing for personal or household use.

Industrial Distributor

A company that purchases goods directly from manufacturers and sells them to various industrial, commercial, and institutional customers.

Prescription Drug

Medications that are legally available only with a valid prescription from a licensed healthcare provider.

Customer Awareness

The degree to which potential buyers recognize and understand a product or brand and its attributes.