(d) The annual percentage rate (APR) for Bank B IS 1g (e) None of the above: 22.
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Question
(d) The annual percentage rate (APR) for Bank B IS 1g (e) None of the above: 22. You are consideri ng either buying or leasing a vehicle. The following data have been compiled: Buying $23,000 $2,000 Leasing $23,000 0 Price of vehicle Down payment required at year O Value of vehicle at the end of Year 3 (unknown) 36 Monthly payments $639 (end of each month) $420 (beginning of each month) $400 (payable at the beginning of lease) Documentation Fee (one time, nonrecurring expense not refundable) If your interest rate is 6% compounded monthly, at what value of the vehicle at the end of 3 year both options economically equivalent? (a) $8,049 (b) $10,447 (c) $9,228 (d) $6,867 (e) None of the above: ill it take for an amount to be doubled if the interest rate 6.55% ?Explanation / Answer
Solution:
Value of vehicle at the end of year 3 if both options are economically equivalant:
$23,004.58 - 0.83564S = $14274.86
0.83564S = $23,004.58 - $14274.86
0.83564S = $8,729.72
S (Salvage value) = $8,729.72 / 0.83564 = $10,447
Computation of Present Value of cash out flows under lease option Particulars Cash outflows Period PV Factor at 0.50% interest Present Value Monthly ease payment at the beginning of month for 36 month $420.00 35 33.03537 $13,874.86 Documentation Fee payable at beginning of lease $400.00 0 1 $400.00 Present Value of Cash outflow under Lease model $14,274.86Related Questions
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