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b) Each $1 of outlay prior to 31 December 2003 would mean a loss in NPV on the alternative project of $0·20. There is so an opportunity cost of using funds in 2002.
Purchasing
Finance lease
Net Present Cost = $(345,818)
There is no cash flow prior to 31 December 2003 in this case and thus no opportunity cost.
Operating lease
Therefore the finance lease is now the lowest cost option.
All the above presume that the alternative project cannot be delayed.
State the Significance of the Cost of Capital It must be recognized at the outset that cost of capital is one of the most difficult and disputed topics in the finance theory.
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Do you have Textbook solutions for Financial Management Core Concepts Author: Raymond M. Brooks. ISBN 978-0-13-267103-3.
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