KB Toys needs to acquire the use of a machine to be used in its...
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KB Toys needs to acquire the use of a machine to be used in its manufacturing process. The machine needed is manufactured by Baxter Corporation. The machine can be used for 10 years and then sold for $10,000 at the end of its useful life. Baxter has presented KB with the following options: 2) The machine could be purchased for $160,000 in cash. All maintenance and insurance costs, which approximate $5,000 per year, would be paid by KB. The machine could be leased for a 10-year period for an annual lease payment of $25,000 with the first payment due immediately. All maintenance and insurance costs will be paid for by the Baxter Corp. and the machine will revert back to Baxter at the end of the 10-year period. a. b. Required: Assuming that a 12% interest rate properly reflects the time value of money in this situation and that all maintenance and insurance costs are paid at the end of each year, determine which option KB should choose. Ignore income tax considerations
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