The wisbley company is contemplating the purchase of a
Course:- Accounting Basics
Reference No.:- EM13601497

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The Wisbley Company is contemplating the purchase of a helicopter for its executives to use in their business trips. This helicopter could be either purchased or leased from the manufacturer. The useful life of the helicopter is four years. Data concerning these two alternatives follow:

  • Buy Lease
  • Purchase Price 900,000 -
  • Annual Cash Payments for Servicing and Licenses 10,000 -
  • Cash Payments for repairs:
  • End of 2nd year 6,000 -
  • End of 3rd year 8,000 -
  • Salvage Value 270,000 -
  • Annual Rental Payments 250,000

If the helicopter is leased, it would be returned to the manufacturer in four years. Wisbley's required rate of return is 22%.The incremental net present value in favor of leasing rather than purchasing is (rounded off to the nearest hundred dollars):

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