A small strip-mining coal company is trying to decide whether it should purchase or lease a new clamshell. If purchased, the shell will cost $150,000 and is expected to have a $65,000 salvage value in 6 years. Alternatively, the company can lease a clamshell for $30,000 per year, but the lease payment will have to be made at the beginning of each year. If the clamshell is purchased, it will be leased to other strip-mining companies whenever possible, an activity that is expected to yield revenues of $12,000 per year. If the company's minimum attractive rate of return is 15 % per year, should the clamshell be purchased or leased on the basis of a future worth analysis?

The clamshell should be purchased.

Explanation:

Note: see the attached for the calculation of the net future worth (NFW) of the two options.

NFW of Buy Option =  $121,150.54

NFW of Lease Option = –$302,003.98

Since the $121,150.54 NFW of the buy option is positive, while the $302,003.98 NFW of the lease option is negative, the clamshell should be purchased.

its simple as this, microeconomics is the study of economics at an individual, group or company level, macroeconomics on the other hand, is the study of a national economy as a whole.

hope it =^-^=

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