Your firm is purchasing a new telephone system that will last for five years. You can purchase the system for an upfront cost of $300,000, or you can lease the system from the manufacturer for $6,000 paid at the end of each month. The lease price is offered for a 60-month lease with no early termination-you cannot end the lease early. Your firm can borrow at an interest rate of 7% APR with monthly compounding. Should you purchase the system outright or pay $6,000 per month?

Question

River Terrell

Business

20 November, 09:04

Your firm is purchasing a new telephone system that will last for five years. You can purchase the system for an upfront cost of $300,000, or you can lease the system from the manufacturer for $6,000 paid at the end of each month. The lease price is offered for a 60-month lease with no early termination-you cannot end the lease early. Your firm can borrow at an interest rate of 7% APR with monthly compounding. Should you purchase the system outright or pay $6,000 per month?

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Answers (1)

Know the Answer?

Camille Joyce · Answer 1

you should purchase the system outright because it would be cheaper than the lease.

Explanation:

because purchase it at $300,000 while lease for 60 months would be 60 X $ 6 000 = $360,000 without the 7% interest rate. With the interest rate he amount would still be higher.