1. Suppose you are studying two hardware lease proposals. Option 1 costs $4,000, but requires that the entire amount be paid in advance. Option 2 costs $5,000, but the payments can be made $1,000 now and $1,000 per year for the next four years. If you do an NPV analysis assuming a 14% discount rate, which proposal is less expensive? What happens if you use an 8% rate?

What will be an ideal response?

When a spreadsheet is used to calculate the present value of the lease proposals, the discount factors (see rows 11 and 15 in the figures) can be changed easily. Using a 14 percent factor, the solution is:







Using an eight percent factor, the solution is: