Buy or lease? (furniture for soon-to-be-completed office building)

jodiboggs

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Feb 23, 2019
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Your boss has given you the responsibility for furnishing the soon-to-be-completed headquarters building. The furniture you have picked out at Cape Furniture Company can be purchased for $125,000 and then sold at the end of its 10 year useful life for $10,000. Cape has also given you the option of leasing the furniture for $18,000 per year for 10 years. Your first payment will be made when you sign the lease and receive the furniture. Under the lease agreement, you will have to return the furniture to Cape at the end of ten years (with no compensation). Assuming the annual interest rate of 9%, which option (buying or leasing) is better and by how much?
 

Subhotosh Khan

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Jun 18, 2007
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Please share your work/thoughts about the above assignment, including the point/s that you don't understand. That will help us understand where we should start to help.
 

Denis

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Feb 17, 2004
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Various ways of doing this. Going the Future Value way:

FV of Purchasing:
FVP = a(1+r)^n - 10000 ; a = 125000, r = .09, n = 10

FV of Leasing (involves annuity immediate formula):
FVL = qp(q^n - 1) / r ; p = 18000, r = .09, q = (1 + r) = 1.09, n = 10

Compare FVP and FVL

If you can't wrap this up now, you need help from your math teacher Jomo.
 
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