Frank Incis Trying to Decide Whether to Lease or Purchase a a Piece

question 53

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? (Future Value of $1,Present Value of $1,Future Value Annuity of $1,Present Value Annuity of $1. ) (Use appropriate factor from the PV tables.Do not round intermediate calculations.Round your final answer to the nearest hundred. )

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

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