q01 Your friend Harold is trying to decide whether to buy or lease his next vehicle. He has gathered informationabout 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 fiveyears and estimates that the salvage value will be $11,100. Alternatively, Harold could lease the same vehicle forfive 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 ValueAnnuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Negativeamounts should be indicated by a minus sign. Round your final answers to 2 decimal places. Do not roundintermediate calculations.)Purchase OptionLease OptionNPV

Answered: Your friend Harold is trying to decide…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 10P

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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 $27,500, and Harold expects to spend about $600 per year in maintenance costs. He would keep the vehicle for five years and estimates that the salvage value will be $10,900. Alternatively, Harold could lease the same vehicle for five years at a cost of $3,575 per year, including maintenance. Assume a discount rate of 12 percent. Required: 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.) Advise Harold about which option he should choose.
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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Please solve correctly . You are considering purchasing a dump truck. The truck will cost $75,000 and have operating and maintenance costs that start at $18,000 the first year and increases by $2,000 per year. Assume that the salvage value at the end of five years is $22,000 and interest rate is 15%. What is the annual operation and maintenance costs of owning this vehicle?
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3. Your favorite neighbor Poindexter learns you are pursuing an MBA and seeks your advice on how to finance 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 $26,500, and he expects to spend about $500 per year in maintenance costs. He would keep the vehicle for five years and estimates that the salvage value will be $10,500. Alternatively, Poindexter could lease the same vehicle for five years at a cost of $5,000 per year, including all maintenance. The lease payments are made at the beginning of each year. Assume a discount rate of 10%. o Provide an analysis for Poindexter at 10%. o Provide the same analysis for good old Poindexter assuming a rate of 5%. At what rate will he be indifferent? o
Tom is considering purchasing a $22400 car. After five years, he will be able to sell the vehicle for $8000. Petrol costs will be $2000 per year, insurance $600 per year, and parking $600 per year. Maintenance costs for the first year will be $1000, rising by $400 per year thereafter. The alternative is for Tom to take taxis everywhere. This will cost an estimated $6000 per year. Tom will rent a vehicle each year at a total cost (to year-end) of $600 for the family vacation, if he has no car. If Tom values money at 11 percent annual interest. What is the annual worth of buying a car? Should he buy a car? Enter YES or NO in the units box. Note: (Use a negative sign (-) for an overall cost)
Mr. Gallagher is considering replacing his five-year-old car with a new one. The new car will cost $30,000, taking into consideration the trade-in value of the old car. The new car will save Mr. Gallagher $5,000 per year in terms of gasoline, repairs, and maintenance. Mr. Gallagher plans to keep this new car for five years. At the end of five years, the car can be sold for $8,000. What is the internal rate of return on the new car? Select one: a. 1.40% b. 2.80% c. 5.00% d. 8.14% e. 9.43%
Liam has three other options for purchasing the Charles Street property. In the first scenario, he could borrow additional money to fund a renovation of the building. He wants to determine the monthly payment for the renovation. Use the monthly interest rate, the loan period in months, and the loan amount to calculate the monthly payment for the renovation scenario. In the second scenario, Liam could pay back the loan in 20 years instead of 15 and reduce his monthly payments to $6,000 with an annual interest rate of 4.5%. He wants to know the loan amount he should request with those conditions. Use the monthly interest rate, the loan period in months, and the monthly payment to calculate the loan amount for the 20-year scenario. In the third scenario, Liam could pay back the loan for eight years with a monthly payment of $8,000 and then renegotiate better terms. He wants to know the amount remaining on the loan after eight years, or the future value of the loan. Use the monthly…
An investment Sheila is considering is a new work truck. Her old Chevy is expected to last another three years with a $2,000 repair next month. Alternatively, Sheila can sell the truck as is for $3,000 (worthless after three more years of use) and buy a used F150 for $9,000 (expected value of $3,000 at the end of three years). The new truck would be more efficient, saving Sheila an average of $100 per month on repair and fuel costs. Sheila believes she can borrow money for the new truck at an annual rate of 5%. Sheila is wondering what the pros and cons of switching trucks are, and if she should upgrade. She also wants advice on the accounting and tax treatment of a truck. Show necessary workings/calculations.

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