Environmental Consulting can buy some field equipment for $46,000 or lease it for 2 years at $28,000 per year. Salvage value of the equipment after 2 years would be $8,000. What is the IRR of the leasing option?

 

Answer :- IRR of leasing option = 4.348%

Step-by-step explanation

?Total expenditure=$46,000?

?Total expense when he buys on lease=2×$28,000−$8,000? ?Total expense when he buys on lease=$56,000−$8,000=48,000?

?Interest Payment =Expenditure without lease - Expenditure with lease Interest Payment =$48,000−$46,000? ?Interest Payment =$2,0000Here, Downpayment is $ 0Internal Rate of interest= Interest payment ??/Total expenditure without lease

?Internal Rate of interest=$2,000/$46,000?×100?

Internal rate of Interest = 4.348 %