Answered

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A contractor is considering whether to buy or lease a new machine for her layout site work. Buying a new machine will cost
$120,000, with a residual value of $12,000 after the machine's useful life of 8 years. On the other hand, leasing requires an annual lease payment of $3000. Assuming that the MARR is 15% and on the basis of an internal rate of return analysis, which alternative should the contractor be advised to accept? The cash flows are as follows:
Year (n) Alt. A (buy) Alt. B (lease)
0 -$12,000 -$3000
1 -$3000
2 -$3000
3 -$3000
4 -$3000
5 -$3000
6 -$3000
7 -$3000
8 +$1,200 $0

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