Your landscaping company can lease a truck for $7,500.00 a year for 7 years. It

Question

Your landscaping company can lease a truck for $7,500.00 a year for 7 years. It can instead buy the truck for $41,545.24. The truck will be valueless after 7 years.

What is the present value of the lease payments, If the interest rate your company can earn on its funds is 6.50%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Your landscaping company can lease a truck for $7,500.00 a year for 7 years. It can instead buy the truck for $41,545.24. The truck will be valueless after 7 years.

Explanation / Answer

Computation of present value

Total present value is$ 41130.

2. Lease is cheaper than buy.

Years Cash flows Discount @ 6.5% Present value of cash flows 1 7500 0.939 7042.5 2 7500 0.882 6615 3 7500 0.828 6210 4 7500 0.777 5827.5 5 7500 0.729 5467.5 6 7500 0.685 5137.5 7 7500 0.644 4830

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