Emma Runs a Small Factory That Needs a Vacuum Oven

question 31

Multiple Choice

Emma runs a small factory that needs a vacuum oven for brazing small fittings. She can purchase the model she needs for $180,000 up front, or she can lease it for five years for $4,200 per month. She can borrow at 7% APR, compounded monthly. Assuming that the oven will be used for five years, should she purchase the oven or should she lease it?

• A) Lease, since the present value (PV) of the lease is $12,224 less than the cost of the oven.
• B) Lease, since the present value (PV) of the lease is $8,642 less than the cost of the oven.
• C) Lease, since the present value (PV) of the lease is $2,212 less than the cost of the oven.
• D) Buy, since the present value (PV) of the lease is $32,108 more than the cost of the oven.

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Definitions:

Marginal Product

The extra production gained by adding one more unit of a specific input while keeping all other inputs unchanged.

Quantity of Land

The total amount or extent of land available for agricultural production, real estate, or other uses.

Factor of Production

An input used in the production of goods or services, such as land, labor, capital, and entrepreneurship.

Earnings

Earnings refer to the amount of money that an individual or business makes before any deductions are taken.