The cardio equipment at a fitness studio needs to be replaced. The cost of new equipment is $16 500. The owner of the studio does not have enough cash to pay for it. She has two options: • Use a line of credit with an interest rate of 12.4%, compounded monthly. • Lease the equipment for 2 years, for $1000 down and $480 each month. a) What is the cost of buying with a line of credit if the owner pays off the loan in 2 years? b) What is the cost of leasing for 2 years? c) The equipment depreciates at 30% per year. What is its value after 2 years?
The cardio equipment at a fitness studio needs to be replaced. The cost of new equipment is $16 500. The owner of the studio does not have enough cash to pay for it. She has two options: • Use a line of credit with an interest rate of 12.4%, compounded monthly. • Lease the equipment for 2 years, for $1000 down and $480 each month. a) What is the cost of buying with a line of credit if the owner pays off the loan in 2 years? b) What is the cost of leasing for 2 years? c) The equipment depreciates at 30% per year. What is its value after 2 years?
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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Question
The cardio equipment at a fitness studio needs to be replaced. The
cost of new equipment is $16 500. The owner of the studio does not
have enough cash to pay for it. She has two options:
•
Use a line of credit with an interest rate of 12.4%, compounded monthly.
•
Lease the equipment for 2 years, for $1000 down and $480 each month.
a)
What is the cost of buying with a line of credit if the owner pays
off the loan in 2 years?
b)
What is the cost of leasing for 2 years?
c)
The equipment
2 years?
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