You have to buy a new copier. The cost of the copier is $2000, plus $400 per year in maintenance costs. The copier will last for five years. Alternatively, a local company offers to lease the copier to you and do the maintenance as well. If your discount rate is 6%, what is the most you would be willing to pay per year to lease the copier? (Your first lease payment is due in one year.)
Hassle-Free Web is bidding to provide webpage hosting services for Hotel Lisbon. Hotel Lisbon pays its current provider $10,000 per year for hosting its webpage and handling transactions on it. Hassle-Free figures that it will need to purchase equipment worth $15,000 up front and then spend $2000 per year on monitoring, updates, and bandwidth to provide the service for three years. If Hassle-Free’s cost of capital is 10%, can it bid less than $10,000 per year to provide the service and still increase its value by doing so?
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