Question

A small strip-mining coal company is trying to decide whether it should purchase or lease a new clamshell. If purchased, the “shell” will cost $160,000 and is expected to have a $57,500 salvage value after 6 years. Alternatively, the company can lease a clamshell for only $19,000 per year, but the lease payment will have to be made at the beginning of each year. If the clamshell is purchased, it will be leased to other strip-mining companies whenever possible, an activity that is expected to yield revenues of $12,000 per year. If the company’s MARR is 16% per year, should the clamshell be purchased or leased on the basis of a future worth analysis? Assume the annual M&O cost is the same for both options.

The future worth when purchased is $  .

The future worth when leased is $  .

The clamshell should be

Answer 1