Frank Inc Is Trying to Decide Whether to Lease or Purchase

question 38

Multiple Choice

Frank 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, Frank estimates it could sell the equipment for $20,000. If Frank leased the equipment, it would pay a set annual fee that would include all maintenance costs. Frank has determined after a net present value analysis that at its hurdle rate of 10%, it would be better off by $5,700 if it buys the equipment. What would the approximate annual cost be if Frank were to lease the equipment?

• A) $9,000
• B) $7,000
• C) $12,000
• D) $13,250

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Definitions:

Business Opportunities

Opportunities in the market where products, services, or business practices can be introduced or improved for potential profit and growth.

Screeningevaluation

An initial assessment process to determine the viability, risk, or worthiness of a project or candidate.

New-product Strategy Development

A process involving market research, product development, and marketing strategies to launch a new product successfully.

Product Assessment

The evaluation process of a product's performance, features, and market potential to determine its viability and success in the market.