Kips ID CORN connect Question t lr Seve & Ext 35.00 points Your tmend Harols is
ID: 2582686 • Letter: K
Question
Kips ID CORN connect Question t lr Seve & Ext 35.00 points Your tmend Harols is trying to decide whether to buy or lease his next veicie He has and Harold expects gathered intormation abou h option but is o compare the nemaives Purchasin years and estmanes at the savage value to spen bour $1,150 years at a cost of $ a 290 per year incluaing maintenance Assume a ascount rane or t percent Required: the tables provided. Negative amounts should be indicated by a minus sign, Round your na answers to 2 decimal places 0o not round intermeate calculations Opton 2. Advise Harold about which option he should choose Lease Opson Parthase Optio eBook & Re DOLLExplanation / Answer
Answer 1 Calculation of net present value of purchase option Year 0 1 2 3 4 5 NPV Purchase of new vehicle -$33,000.00 Maintenance cost -$1,150.00 -$1,150.00 -$1,150.00 -$1,150.00 -$1,150.00 Salvage value of vehicle $13,100.00 Net Cash flow -$33,000.00 -$1,150.00 -$1,150.00 -$1,150.00 -$1,150.00 $11,950.00 Discount factor @ 11% 1 0.9009009 0.8116224 0.7311914 0.658731 0.5934513 Present Value -$33,000.00 -$1,036.04 -$933.37 -$840.87 -$757.54 $7,091.74 -$29,476.07 Calculation of net present value of lease option Year 0 1 2 3 4 5 NPV Lease payments $0.00 -$4,290.00 -$4,290.00 -$4,290.00 -$4,290.00 -$4,290.00 Net Cash flow $0.00 -$4,290.00 -$4,290.00 -$4,290.00 -$4,290.00 -$4,290.00 Discount factor @ 11% 1 0.9009009 0.8116224 0.7311914 0.658731 0.5934513 Present Value $0.00 -$3,864.86 -$3,481.86 -$3,136.81 -$2,825.96 -$2,545.91 -$15,855.40 NPV of Purchase option -$29,476.07 NPV of Lease option -$15,855.40 Answer 2 Harold should choose Lease option as this option has lower net present value of cash flow compared to Purchase option.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.