August 1, Rantoul Stores Inc. is considering leasing a building and purchasing the necessary equipment to operate a retail store. Alternatively, the company could use the funds to invest in $1,000,000 of 4% U.S. Treasury bonds that mature in 15 years. The bonds could be purchased at face value. The following data have been ass
August 1, Rantoul Stores Inc. is considering leasing a building and purchasing the necessary equipment to operate a retail store. Alternatively, the company could use the funds to invest in $1,000,000 of 4% U.S. Treasury bonds that mature in 15 years. The bonds could be purchased at face value. The following data have been ass
Chapter4: Time Value Of Money
Section: Chapter Questions
Problem 15PROB
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Differential Analysis Involving Opportunity Costs
On August 1, Rantoul Stores Inc. is considering leasing a building and purchasing the necessary equipment to operate a retail store. Alternatively, the company could use the funds to invest in $1,000,000 of 4% U.S. Treasury bonds that mature in 15 years. The bonds could be purchased at face value. The following data have been assembled:
Cost of store equipment | $1,000,000 | |
Life of store equipment | 15 years | |
Estimated residual value of store equipment | $50,000 | |
Yearly costs to operate the store, excluding | ||
$200,000 | ||
Yearly expected revenues—years 1–6 | $300,000 | |
Yearly expected revenues—years 7–15 | $400,000 |
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