Your friend Harold is trying to decide whether to buy or lease his next vehicle. He has gathered information about each option but is not sure how to compare the alternatives. Purchasing a new vehicle will cost $28,000, and Harold expects to spend about $650 per year in maintenance costs. He would keep the vehicle for five years and estimates that the salvage value will be $11,100. Alternatively, Harold could lease the same vehicle for five years at a cost of $3,640 per year, including maintenance. Assume a discount rate of 10 percent. Required: 1. Calculate the net present value of Harold's options. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Negative amounts should be indicated by a minus sign. Round your final answers to 2 decimal places. Do not round intermediate calculations.) Purchase Option Lease Option NPV

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
10th Edition
ISBN:9781337902571
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Eugene F. Brigham, Joel F. Houston
Chapter12: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 10P: Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6...
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Your friend Harold is trying to decide whether to buy or lease his next vehicle. He has gathered information
about each option but is not sure how to compare the alternatives. Purchasing a new vehicle will cost $28,000,
and Harold expects to spend about $650 per year in maintenance costs. He would keep the vehicle for five
years and estimates that the salvage value will be $11,100. Alternatively, Harold could lease the same vehicle for
five years at a cost of $3,640 per year, including maintenance. Assume a discount rate of 10 percent.
Required:
1. Calculate the net present value of Harold's options. (Future Value of $1, Present Value of $1, Future Value
Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Negative
amounts should be indicated by a minus sign. Round your final answers to 2 decimal places. Do not round
intermediate calculations.)
Purchase Option
Lease Option
NPV
Transcribed Image Text:Your friend Harold is trying to decide whether to buy or lease his next vehicle. He has gathered information about each option but is not sure how to compare the alternatives. Purchasing a new vehicle will cost $28,000, and Harold expects to spend about $650 per year in maintenance costs. He would keep the vehicle for five years and estimates that the salvage value will be $11,100. Alternatively, Harold could lease the same vehicle for five years at a cost of $3,640 per year, including maintenance. Assume a discount rate of 10 percent. Required: 1. Calculate the net present value of Harold's options. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Negative amounts should be indicated by a minus sign. Round your final answers to 2 decimal places. Do not round intermediate calculations.) Purchase Option Lease Option NPV
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