Question

The university must replace its computers every five years. The university can spend $ 450000 to buy new computers every five years, or it can lease computers from Dell for $4000 each month (Dell will automatically replace the leased computers with new computers every five years). Assume the interest rate is 8% per annum.

Should the university buy its computers, or lease them?

Answer 1

After calculating the total costs for both buying and leasing the computers for a five-year period, the university should opt for buying the computers since it is less expensive than leasing.

Step-by-step explanation:

The question is regarding whether the university should buy computers outright or lease them. To solve this, we need to calculate the total cost for each option over a five-year period and compare them. For buying, the cost is a one-time payment of $450,000.

For leasing, the monthly payments of $4,000 add up to $48,000 per year, and over five years this becomes $240,000.

Since there is no mention of a different replacement policy or additional leasing benefits, and the interest rate does not apply to the one-time payment option, it is more cost-effective for the university to buy the computers for $450,000 than to lease them for $240,000 every five years.