Assign 12-2 - 0 7.469-448140 Repairs and maintenance 1-20...

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Analytical Thinking Lease Item years amount of cash flows 12% present value of cash flows Annual Lease payment 1-19 -1000000 7.366 -7366000 Initial payment now -1000000 1 -1000000 Security Deposit now -400000 1 -400000 Security Deposit 2- 400000 0.104 41600 Repairs and maintenance 1-20 50000 7.469 373450 -8350950 Buy item years amount of cash flows 12% present value of cash flows New Building now -6000000 1 -6000000 mortgage 1-4 -2000000 3.037 -6074000 Taxes 1-20 -90000 7.469 -672210 Insurance
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Unformatted text preview: 1-20-60000 7.469-448140 Repairs and maintenance 1-20 50000 7.469 373450 Salvage Value 20 5000000 0.104 520000-12300900 According to the Net present value, they should lease and not buy. The salvage value is what we now expect to get by selling the building after 20 years. We cannot predict it till it happens. Even if we include the Salvage value at $5 million, it is still better to lease than buy....
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