Part c financial analysis - Essay Example

Financial Analysis The hardware analysis of two lease projects has two options. Option considers a single down payment of $ 4000 in advance, while the second proposal considers yearly payments of $ 1000 starting from time=0. The total payment for option 2 would be $ 5000, so it would take payments of $ 1000 yearly for next 4 years.Option 1’s Net Present Value is simple to calculate and is nothing but a single lump payment of $ 4000 at start. Option 2 however has yearly payments to pay and the discount rate for the time period is 14%.

So, the net present value can be easily calculated by discounting future payments to current value (Illinois Institute of Technology). Time=0 payment would be $ 1000, the first installment payment. Time=1 payment is discounted by factor (1.14) to come up with the present value of $ 877. Time=2 payment is discounted by discount factor (1.3) to come up with the present value of $ 769. Time=3 payment is discounted by (1.48) to arrive at the present value of $ 675. Lastly, time=4 value is discounted by (1.69) to arrive at the present value of $ 592.

The total NPV of the second option is $ 3914.Looking at the NPV of both projects, the NPV of option 2 is slightly better than the NPV of option 1, and so is less expensive.If the discount rate was 8%, then the NPV of second proposal would have been $ 4309, which would have been more expensive than option 1. So in that case option 1 would have been a better option.ReferencesIllinois Institute of Technology. "NPV Calculation." Academic Resource Center (n.d.).