Using the appropriate table from the Chapter 12 Appendices, record the present-v
ID: 2655578 • Letter: U
Question
Using the appropriate table from the Chapter 12 Appendices, record the present-value factor at 10% for each year and compute the present-value cost of owning and the present value of leasing. Which alternative is more desirable at this interest rate? Do you think your answer would change if the interest rate was 6% instead of 10%?
Cost of Owning: Anywhere Clinic—Comparative Present Value
For-Profit Cost of Owning:
Year 0
Year 1
Year 2
Year 3
Year 4
Year 5
Net Cash Flow
(48,750)
2,500
2,500
2,500
2,500
5,000
Present-value factor
Present-value answers =
Present-value cost of owning =
Cost of Leasing: Anywhere Clinic—Comparative Present Value
Line#
For-Profit Cost of Leasing:
Year 0
Year 1
Year 2
Year 3
Year 4
Year 5
19
Net Cash Flow
(8,250)
(8,250)
(8,250)
(8,250)
(8,250)
—-
20
Present-value factor
21
Present-value answers =
22
Present-value cost of leasing =
APPENDIX 12-A Present-Value Table (The Present Value of $1.00)
APPENDIX 12-B Compound Interest Table Compound Interest of $1.00 (The Future Amount of $1.00)
APPENDIX 12-C Present Value of an Annuity of $1.00
Cost of Owning: Anywhere Clinic—Comparative Present Value
For-Profit Cost of Owning:
Year 0
Year 1
Year 2
Year 3
Year 4
Year 5
Net Cash Flow
(48,750)
2,500
2,500
2,500
2,500
5,000
Present-value factor
Present-value answers =
Present-value cost of owning =
Explanation / Answer
Cost of Owning: Anywhere Clinic—Comparative Present Value For-Profit Cost of Owning: Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Net Cash Flow -48750.00 2500.00 2500.00 2500.00 2500.00 5000.00 Present-value factor (10%) 1.00 0.91 0.83 0.75 0.68 0.62 Present-value answers = -48750.00 2272.73 2066.12 1878.29 1707.53 3104.61 Present-value cost of owning = -37720.73 Cost of Leasing: Anywhere Clinic—Comparative Present Value For-Profit Cost of Leasing: Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Net Cash Flow -8250.00 -8250.00 -8250.00 -8250.00 -8250.00 —- Present-value factor (10%) 1.00 0.91 0.83 0.75 0.68 Present-value answers = -8250.00 -7500.00 -6818.18 -6198.35 -5634.86 Present-value cost of leasing = -34401.39 Cost of Leasing at 10 %is better than cost of owing because PV of leasing is less than owing Cost of Owning: Anywhere Clinic—Comparative Present Value For-Profit Cost of Owning: Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Net Cash Flow -48750.00 2500.00 2500.00 2500.00 2500.00 5000.00 Present-value factor (6%) 1.00 0.94 0.89 0.84 0.79 0.75 Present-value answers = -48750.00 2358.49 2224.99 2099.05 1980.23 3736.29 Present-value cost of owning = -36350.95 Cost of Leasing: Anywhere Clinic—Comparative Present Value For-Profit Cost of Leasing: Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Net Cash Flow -8250.00 -8250.00 -8250.00 -8250.00 -8250.00 —- Present-value factor (6%) 1.00 0.94 0.89 0.84 0.79 Present-value answers = -8250.00 -7783.02 -7342.47 -6926.86 -6534.77 Present-value cost of leasing = -36837.12 Cost of Owing at 6 % is better than cost of Leasing because PV of owing is less than Leasing.
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