Principles of Managerial Finance
17th Edition
ISBN: 9781323419656
Author: Gitman
Publisher: PEARSON
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Chapter 17, Problem 17.6P
Lease-versus-purchase decision Joanna Browne is considering either leasing or purchasing a new Chrysler Sebring convertible that has a manufacturer’s suggested retail price (MSRP) of $33,000. The dealership offers a 3-year lease that requires a capital payment of $3,300 ($3,000 down payment + $300 security deposit) and monthly payments of $494. Purchasing requires a $2,640 down payment, sales tax of 6.5% ($2,145), and 36 monthly payments of $784. Joanna estimates that the value of the car will be $17,000 at the end of 3 years. She can earn 5% annual interest on her savings and is subject to a 6.5% sales tax on purchases.
Make a reasonable recommendation to Joanna, using a lease-versus-purchase analysis that, for simplicity, ignores the
- a. Calculate the total cost of leasing.
- b. Calculate the total cost of purchasing.
- c. Which should Joanna do?
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Chapter 17 Solutions
Principles of Managerial Finance
Ch. 17.1 - Prob. 17.1RQCh. 17.2 - Prob. 1FOECh. 17.2 - What is leasing? Define, compare, and contrast...Ch. 17.2 - Describe the four basic steps involved in the...Ch. 17.2 - What type of lease must be treated as a...Ch. 17.2 - Prob. 17.5RQCh. 17.3 - What is the conversion feature? What is a...Ch. 17.3 - When the market price of the stock rises above the...Ch. 17.3 - Define the straight bond value, conversion (or...Ch. 17.4 - What are stock purchase warrants? What are the...
Ch. 17.4 - Prob. 17.10RQCh. 17.4 - Prob. 17.11RQCh. 17.5 - Prob. 17.12RQCh. 17.5 - How can the firm use currency options to hedge...Ch. 17 - Prob. 17.2STPCh. 17 - N and M Corp, is considering leasing a new machine...Ch. 17 - During the past 2 years Meacham Industries issued...Ch. 17 - Prob. 17.3WUECh. 17 - Prob. 17.4WUECh. 17 - Prob. 17.5WUECh. 17 - Prob. 17.1PCh. 17 - Prob. 17.2PCh. 17 - Loan payments and interest Schuyler Company wishes...Ch. 17 - Prob. 17.4PCh. 17 - Prob. 17.5PCh. 17 - Lease-versus-purchase decision Joanna Browne is...Ch. 17 - Capitalized lease values Given the lease payments,...Ch. 17 - Prob. 17.8PCh. 17 - Conversion ratio What is the conversion ratio for...Ch. 17 - Conversion (or stock) value What is the conversion...Ch. 17 - Prob. 17.11PCh. 17 - Prob. 17.12PCh. 17 - Determining values: Convertible bond Eastern Clock...Ch. 17 - Prob. 17.14PCh. 17 - Prob. 17.18PCh. 17 - Prob. 17.23P
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