Why oakland prefer to lease rather than buy office space

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Reference no: EM132764155

Oakland must lease a new facility for administration of its pension plan and has two lease options:

Option A: $100,000 payable at the beginning of each year for the next 20 years.

Option B: $85,000 payable at the end of each year, for the next 20 years plus a lump-sum payment made at the end of 20 years of $18,000.

Problem 1: What is the present value cost of Option A using a 5% discount rate?

Problem 2: What is the present value cost of Option B using a 5% discount rate

Problem 3: Which lease option is superior from a financial perspective? (circle one)

  • OPTION A
  • OPTION B

Problem 4: Briefly explain why Oakland might prefer to lease rather than buy office space.

Reference no: EM132764155

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