Dundar Mifflin is considering the purchase of new printer and have narrowed down the possibilities to two models which perform equally well. However, the method of paying for the two models is different. Model A requires $8,000 per year payment for the next five years. Model B requires the following payment schedule. Payment (Model 2) $10,000 9,000 Year 1 2 8,000 5,000 4 3,000 1. Which model should you buy assuming 12% rate?

Dundar Mifflin is considering the purchase of new printer and have narrowed down the possibilities to two models which perform equally well. However, the method of paying for the two models is different. Model A requires $8,000 per year payment for the next five years. Model B requires the following payment schedule. Payment (Model 2) $10,000 9,000 Year 1 2 8,000 5,000 4 3,000 1. Which model should you buy assuming 12% rate?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Vijay
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Suppose you can buy a new Toyota corolla for $20000 and sell it for $12000 in third year. For simplication, assume you sell the car at the beginning of the third year but can keep driving it until the end of the third year. Alternatively you can lease the car for $300 per month for three years and return it at the end of the three years. For simplication, assume that lease payments are made yearly instead of monthly- i.e,, that they are $3600 per year and are made at the beginning of each of the three years. a. If the interest rate R is 4%, it is better to buy or lease? b. If the interest rate is 10%,it is better to buy or lease? c. At what interest rate would you be indifferent between buying and leasing the car in percent?
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