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Partex Ltd. is considering the purchase of new laser technology. The equipment can be purchased for $500,000 and is expected to last 5 years. At the end of its life the machine can be sold for scrap parts and should generate $50000 in revenue. Parted has also been advised that the service contract on the new equipment will cost $2000 per month. If Partex decides not to undertake the service contract there will be no warranty of the new equipment.

Another option is to lease the new equipment for $12,500 per month; no other cost is incurred, as the lease includes the service contract.

If Partex can earn 8%, compounded annually, which option is better - to buy or to lease?

I already understand how to get to the present value of the lease payments. I'm having trouble with the first part of the question.

Accounting Basics, Accounting

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