1. You have a choice of leasing a truck for six years at $9,000/year, paid at the end of each year, or buying the truck for $44,000. At the end of six years the truck would be worthless. The interest rate is 5.5%. Would you lease or buy? 2. A similar situation as #1: lease for $9,000/year, or buy for $44,000, but if you buy the truck, and pay to maintain the truck (e.g. change oil and other fluids, replace windshield wipers, belts, tires, etc.), which are $500/year, paid at the end of each year, then at the end of six years, the truck would be worth $2,000 and you could sell the truck. Would you lease or buy?

1. You have a choice of leasing a truck for six years at $9,000/year, paid at the end of each year, or buying the truck for $44,000. At the end of six years the truck would be worthless. The interest rate is 5.5%. Would you lease or buy? 2. A similar situation as #1: lease for $9,000/year, or buy for $44,000, but if you buy the truck, and pay to maintain the truck (e.g. change oil and other fluids, replace windshield wipers, belts, tires, etc.), which are $500/year, paid at the end of each year, then at the end of six years, the truck would be worth $2,000 and you could sell the truck. Would you lease or buy?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 14P

See similar textbooks

Similar questions

Suppose you want to become a Lyft driver and need to lease a car. You want a car valued at $22,000. The dealer will let you drive away with no money down. You sign a 5 year lease with monthly payments. The imbedded discount rate on the lease is 6%. At the end of the fifth year, you would need to pay a residual value payment of $5,255.19 in order to take ownership of the car. What is the required monthly payment? Round to the nearest $ and use the $ symbol.
3) You are purchasing a car and have the option to pay $25,000 in cash (upfront) OR assume a lease with end of the month payments of $399 for five years. By purchasing, you will receive an estimated residual value (or scrap value) by selling the car for $2,500 at the end of the 5 years. If interest is 2.7% compounded annually, which financing option would you prefer? (16.1 DCF)
1. You are buying a new vehicle and trying to determine what payment option you want. The salesperson has offered three options: (1) a cash price of $23,000 paid today, (2) a five year lease with $3600 per year starting at the signing of the lease of the vehicle and a buyout price of $9500 at the fifth year, (3) er a six year finance with $4500 per year starting at the signing of the finance of the vehicle. Assume that the interest rate for the first three years is 3% and the years after is 5%. a. Draw the number line and accurately show the lease/buyout option. b. and calculate the present value of the lease option. c. Draw the number line and accurately show the finance option. d. and calculate the present value of the finance option. e. Which payment option would you choose? Why?
3. Lease vs Buy: You are considering whether to buy or lease a Jeep Wrangler. For a Wrangler priced at $29,540, if you purchase it you will have a payment of $6,024/year ($502/month) for five years (at 5 percent financing with $2,954 down). If you lease you will pay $3,300/year ($275/month) for five years, with a down payment of $1,200. Note that these are monthly payments but we will treat these as annual payments for the calculations to simplify (i.e., just use $6,024 for the purchase and $3,300 for the lease annually). At the end of five years, the Jeep will have a salvage value of $17,000. Also, assume that the down payment and first year payments are due today (i.e., time zero) so that the second year payment is due in one year, third year payment in two years, etc. (this is important for discounting). a. After 4 years, how much more will the purchase have cost than the lease (i.c., total nominal money paid out)? Consider the total costs without time value of money. b. Assuming a…
A computer dealer offers(a) to lease a system to you for $50 permonth for two years. At the end of two years, you have the option to buy the system for $500. You will pay at the end of each month.(b) He will sell the same system to you for $1,200 cash.If the going interest rate is 12%, which is the better offer (a) or (b)?
You are considering leasing a car. You notice an ad that says you can lease the car you want for R477.00 per month. The lease term is 60 months with the first payment due at inception of the lease. You must also make an additional down payment of R2,370. The ad also says that the residual value of the vehicle is R20,430. After much research, you have concluded that you could buy the car for a total "driveout" price of R33,800. What is the quoted annual interest rate you will pay with the lease?
Li Jun can purchase a new car for $20,000. Alternatively, in addition to a down payment of $2,600, Li Jun can make lease payments of $500 at the beginning of each month for three years to lease the car. The car has a residual value of $10,000. Assume that the cost of borrowing is 4.47% compounded monthly. a. Which option is economically better for Li Jun? Buy Now O Lease b. In the lease option, what will be the buyback value of the vehicle at the end of two years? Round to nearest cent. SAVE PROGRESS SUBMIT ASSIGNMENT
Suppose that you take out a 40-year $175000 mortgage with an APR of 6%. You make payments for 3 years and then you consider refinancing the original loan. The new loan would have a term of 15 years, have and APR of 5.7% and be in the amount of the unpaid balance on the original loan. The administrative cost of taking out the second loan would be $1700. What are the monthly payments on the original loan? What would the monthly payment of the second loan be? What would the total amount you would pay if you continued with the original 40-year loan without refinancing? What would the total amount would you pay with the refinancing?
You plan to buy a new car. The car dealer offers the following two options: Option A: Pay $12,000 each year for 3 years Option B: Pay $1,000 each month for 3 years Your friend recommends option A. Do you agree? (ps: this is the full question that without interest rate numbers; plz use present value method thx)
A borrower is purchasing a property for $1,800,000 and can choose between two possible loan alternatives. The first is a 75% loan for 25 years at 9% interest and 1 point and the second is an 80% loan for 25 years at 9.25% interest and 1 point. Assume the loan term will be 5 years. What is the incremental cost of borrowing the extra money?
A borrower is purchasing a property for $200,000 and can choose between two possible loan alternatives. Loan A is a 90% loan for 25 years at 8% interest and 2 points and Loan B is a 95% loan for 25 years at 8.75% interest and 1 point. Assume the loans will be held to maturity, what is the incremental cost of borrowing the extra money? Assume that the loans will be repaid in 5 years. What is the incremental cost of borrowing the extra money? Rework parts (a) and (b) assuming the lender is charging 3 points on Loan A and 2 point on Loan B. What is the incremental cost of borrowing?
You agree to purchase a car with a competitive value of $44,500 for the following loan contract: Purchase the car for $44,250 with $2,000 down and borrow the remainder over 5 years with monthly payments based on a rate of interest of 6.6%. Your market rate of return is 5.25%. How much value did you destroy with this purchase? (Round to dollars and cents; round the car payment to dollars and cents.)