Frank Inc. is trying to decide whether to lease or purchase a piece of equipment needed for the next ten years. The equipment would cost $45,000 to purchase, and maintenance costs would be $5,000 per year. After ten years, Frank estimates it could sell the equipment for $20,000. If Frank leased the equipment, it would pay a set annual fee that would include all maintenance costs. Frank has determined after a net present value analysis that at its hurdle rate of 10%, it would be better off by $5,700 if it buys the equipment. What would the approximate annual cost be if Frank were to lease the equipment?

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The Answer of Frank Inc. is trying to decide whether to lease or purchase a piece of equipment needed for the next ten years. The equipment would cost $45,000 to purchase, and maintenance costs would be $5,000 per year. After ten years, Frank estimates it could sell the equipment for $20,000. If Frank leased the equipment, it would pay a set annual fee that would include all maintenance costs. Frank has determined after a net present value analysis that at its hurdle rate of 10%, it would be better off by $5,700 if it buys the equipment. What would the approximate annual cost be if Frank were to lease the equipment?

Frank Inc Is Trying to Decide Whether to Lease or Purchase