A local car dealer is advertising a standard24-month lease of $1,150 per month for its new XT3000 series sports car. The standard lease requires adown payment of $4,500, plus a $1,000 refundableinitial deposit now. The first lease payment is due atthe beginning of month 1. In addition, the companyoffers a 24-month lease plan that has a single up-frontpayment of $29,500, plus a refundable initial depositof $1,000. Under both options, the initial depositwill be refunded at the end of month 24. Assume aninterest rate of 6% compounded monthly. With thepresent-worth criterion, which option is preferred?
A local car dealer is advertising a standard24-month lease of $1,150 per month for its new XT3000 series sports car. The standard lease requires adown payment of $4,500, plus a $1,000 refundableinitial deposit now. The first lease payment is due atthe beginning of month 1. In addition, the companyoffers a 24-month lease plan that has a single up-frontpayment of $29,500, plus a refundable initial depositof $1,000. Under both options, the initial depositwill be refunded at the end of month 24. Assume aninterest rate of 6% compounded monthly. With thepresent-worth criterion, which option is preferred?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
A local car dealer is advertising a standard
24-month lease of $1,150 per month for its new XT
3000 series sports car. The standard lease requires a
down payment of $4,500, plus a $1,000 refundable
initial deposit now. The first lease payment is due at
the beginning of month 1. In addition, the company
offers a 24-month lease plan that has a single up-front
payment of $29,500, plus a refundable initial deposit
of $1,000. Under both options, the initial deposit
will be refunded at the end of month 24. Assume an
interest rate of 6% compounded monthly. With the
present-worth criterion, which option is preferred?
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