Buying vs Renting a Company Boat for 2 year use Option 1: Buying Boat Boat cost:
ID: 2663257 • Letter: B
Question
Buying vs Renting a Company Boat for 2 year useOption 1: Buying Boat
Boat cost: $400,000,000
Can return in 2 years obtaining the same $400,000,000
Option 2: Renting Boat
Monthly cost: $8,000,000 in rent
-Which would be the value of operation of buying the boat with a 15% annual interest loan from a bank plus a front end fee of 1.75% over this amount? (Calculate profitability)
-If the company had $400,000,000 and the bank offers a deposit of 9% annual interest for this amount, which would be better, buying or renting the boat? (By choosing buy I couldn’t constitute the deposit that the bank offers/By choosing rent I would have monthly payments of rent with partial interests of the deposit).
-If the company had to choose between buying/renting OR an third alternative option which requires the same initial investment ($400,000,000) and generates constant and perpetual annual cash flow of $7,000,000, which option to take?
Explanation / Answer
If my math is right, it's option A.
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