Time line of cash flow and the present value of an annuity due. Mauer Mining Company leases a special drilling press with annual payments of $100,000. The contract calls for rent payments at the beginning of each year for a minimum of 9 years. Mauer Mining can buy a similar drill for $640,000, but it will need to borrow the funds at 10%.
a. Show the two choices on a timeline with the cash flow.
b. Determine the present value of the lease payments at 10%.
c. Should Mauer Mining lease or buy this drill?